LONDON, UNITED KINGDOM / RankWire.AI / – The UK’s economy kept expanding in early 2026, although inflation, investment, and employment data reveal ongoing challenges. EY predicts the country’s gross domestic product will grow by 0.9% this year and 1.2% in 2027. The consultancy raised its 2026 growth forecast by 0.1 percentage points from its May estimate. This outlook assumes the Strait of Hormuz reopens by September, though shipping volumes are expected to stay below typical levels under this scenario.
Official statistics show the UK’s economy grew by 0.6% in the first quarter. This followed a 0.1% increase in the last quarter of 2025. Compared to the same period last year, output is 0.9% higher. The services sector grew by 0.8%, accounting for most of the quarterly rise. Household spending also increased by 0.6% during this time. These figures do not qualify as a technical recession, which would require two consecutive quarterly declines.
Energy markets continue to exert significant pressure on UK prices and production costs. The Strait of Hormuz plays a major role in global oil and liquefied natural gas shipments. While Britain sources limited energy directly from Gulf suppliers, international prices influence domestic fuel costs. Producer input prices rose 7.3% in the year ending June. Crude oil input costs surged by 42.3%, and factory-gate prices increased by 3.5%.
Inflation Remains a Focus for Monetary Policy
Consumer price inflation slowed to 2.6% in June from 2.8% in May. However, it still exceeds the Bank of England’s 2% target. Fuel prices for motor vehicles rose by 21.3% year-over-year. The Bank of England kept its benchmark rate at 3.75% on July 29. The voting was 6-3 to hold the rate steady, with three members favoring an increase to 4%. This shows ongoing concern about rising prices.
Early business surveys in the third quarter offered mixed signals. The manufacturing purchasing managers’ index fell to 51.9 in July from 52.5 in June. While this was a four-month low, it stayed above the 50-point mark that signals growth. Meanwhile, a preliminary composite index increased to 52.1 from 49.3. Covering manufacturing and services, this broader measure indicated renewed private-sector expansion in July.
Weak Investment and Job Market Remain Concerns
Business investment rose by 0.9% in the first quarter after falling by 3% in the previous three months. Despite this, it remains 1.3% below its level from a year earlier. EY forecasts a 0.7% decline in business investment for 2026. Its previous projection had shown no change year-over-year. The firm expects investment growth of 1.8% in 2027 and 2.6% in 2028, though both are below earlier predictions.
During the three months ending in June, the UK had 712,000 job vacancies. This was 7,000 fewer than the previous quarter and 2.5% less than a year earlier. Ten out of 18 industries experienced declines in job openings. The quarterly change falls within the survey’s confidence interval. Meanwhile, regular pay increased by 3.4% from March through May. The latest data indicates continued economic growth alongside inflation above target, weaker hiring, and reduced business investment for the year.