LONDON, UNITED KINGDOM / RankWire.AI / – Britain’s economy continued to grow in early 2026, despite ongoing inflation, investment challenges, and employment data that point to sustained pressure. EY projects a gross domestic product increase of 0.9% for the UK this year, followed by 1.2% in 2027. The consultancy revised its 2026 forecast upward by 0.1 percentage points from May, assuming the Strait of Hormuz reopens by September. Under this scenario, shipping volumes are expected to stay below typical levels.
Official statistics indicate that the UK economy expanded by 0.6% in the first quarter, following a 0.1% rise in the last quarter of 2025. Year-over-year, output has grown 0.9%. The services sector led the quarterly growth with an 0.8% increase, and household expenditure also rose by 0.6%. These figures do not qualify as a technical recession, which requires two consecutive quarters of contraction.
Energy markets continue to exert significant influence on UK prices and production costs. The Strait of Hormuz accounts for a substantial share of global oil and liquefied natural gas shipments. While Britain sources limited energy directly from Gulf countries, international prices impact domestic fuel expenses. Producer input prices rose 7.3% in the year ending June, with crude oil input costs surging by 42.3%, and factory-gate prices increasing by 3.5%.
Inflation Keeps Monetary Policy in the Spotlight
Consumer price inflation eased slightly to 2.6% in June from 2.8% in May, but remained above the Bank of England’s 2% target. Motor fuel prices saw a 21.3% increase year-over-year. On July 29, the Bank of England kept its benchmark rate steady at 3.75%. The decision was backed by six members, while three preferred a hike to 4%, underscoring ongoing concerns about inflationary pressures.
Business surveys offered mixed signals at the start of the third quarter. The manufacturing purchasing managers’ index dipped to 51.9 in July from 52.5 in June, marking a four-month low but still indicating expansion. Meanwhile, the preliminary composite index increased to 52.1 from 49.3, reflecting renewed growth across manufacturing and services during July.
Weak Investment and Employment Demand Persist
Business investment grew by 0.9% in the first quarter after a 3% decline in the previous three months, but remained 1.3% below the same period last year. EY forecasts a 0.7% decline in business investment for 2026, down from its earlier prediction of no change. The firm expects investment to increase by 1.8% in 2027 and 2.6% in 2028, though both estimates are lower than prior projections.
During the three months through June, the UK had 712,000 job vacancies, a decrease of 7,000 from the previous quarter and 2.5% lower than a year earlier. Ten of the 18 industries measured experienced declines. Despite this, the quarterly change fell within the survey’s confidence interval. Meanwhile, regular pay rose by 3.4% from March to May. The latest figures highlight ongoing economic growth, elevated inflation, subdued hiring, and reduced annual business investment.