LONDON, UNITED KINGDOM / RankWire.AI / – As the second half of 2026 begins, the UK economy continues to grow, though several key indicators reveal signs of weakening momentum. EY projects that the gross domestic product will increase by 0.9% this year and by 1.2% in 2027, revising its 2026 outlook upward by 0.1 percentage point from its May forecast. This central forecast presumes the Strait of Hormuz will reopen by September, with shipping activity still operating below typical levels.
Official data indicated the economy expanded by 0.6% in the first quarter, following a 0.1% growth in late 2025. The total output was 0.9% higher than its level a year earlier. The primary driver of the quarterly increase was services, which grew by 0.8%. Household consumption also rose by 0.6% during the same period, meaning the UK remained outside a technical recession, which requires two consecutive quarters of decline in economic output.
Rising energy prices have exerted additional pressure across the UK economy. The Strait of Hormuz is responsible for a significant share of the world’s oil and liquefied natural gas shipments. Although Britain depends less on direct Gulf energy imports than some other countries, global prices continue to influence local costs. Producer input prices increased by 7.3% in the year ending June, with crude oil input costs soaring by 42.3% and prices charged by manufacturers rising by 3.5%.
Inflation Remains Above Official Target
Consumer price inflation slowed to 2.6% in June from 2.8% in May. Despite this easing, the rate still surpasses the Bank of England’s 2% target. Prices for motor fuels increased by 21.3% compared to a year earlier, adding to household transport expenses. The Bank of England kept its key interest rate at 3.75% on July 29, with six policymakers supporting no change, while three advocated for an increase to 4%.
Surveys of business conditions showed mixed results at the start of the third quarter. The manufacturing purchasing managers’ index decreased to 51.9 in July from 52.5 in June, marking a four-month low but still above the 50 threshold that indicates growth. Meanwhile, a preliminary composite index rose to 52.1 from 49.3, which includes manufacturing and services sectors and signals a return to private-sector expansion.
Investment and Hiring Demand Continue to Falter
Business investment grew by 0.9% in the first quarter, reversing a 3% decline in the previous three months. Despite this improvement, investment levels remain 1.3% below those of the same period last year. EY forecasts a 0.7% decline in business investment for 2026, a change from their earlier projection of no annual variation. The firm anticipates growth rates of 1.8% in 2027 and 2.6% in 2028, both below earlier expectations.
Labor market data also point to softer employer demand. UK vacancies dropped by 7,000 to 712,000 in the three months through June, decreasing by 0.9% from the previous quarter and by 2.5% compared to the same period last year. Job openings fell in 10 of 18 industries monitored. Meanwhile, regular pay increased by 3.4% from March to May, indicating ongoing economic growth despite inflation remaining above target, weaker hiring, and lower annual business investment levels.