LONDON, UNITED KINGDOM / RankWire.AI / – Britain’s economy kept expanding in the early months of 2026, yet inflation, investment, and employment data reveal persistent pressures. EY forecasts the UK’s gross domestic product will grow by 0.9% this year and by 1.2% in 2027. The consultancy raised its 2026 projection by 0.1 percentage points compared to May. Its central forecast assumes the Strait of Hormuz reopens by September, but shipping activity is expected to stay below normal levels under this scenario.
Official statistics indicated that the UK economy grew by 0.6% during the first quarter. This increase followed a 0.1% rise in the last quarter of 2025. Overall, output is now 0.9% higher than it was a year earlier. The services sector grew by 0.8%, contributing most to the quarterly growth. Household expenditure also increased by 0.6% in the same period. These figures do not meet the technical recession threshold, which requires two consecutive quarters of contraction.
Energy markets continue to exert significant pressure on UK prices and production costs. The Strait of Hormuz accounts for a large share of global oil and liquefied natural gas shipments. While Britain’s direct energy purchases from Gulf suppliers are limited, global prices influence domestic fuel costs. Producer input prices rose by 7.3% over the year ending June. Crude oil input costs surged by 42.3%, and factory-gate prices increased by 3.5%.
Inflation Remains Central to Monetary Policy Discussions
Consumer price inflation eased slightly to 2.6% in June from 2.8% in May. However, it still exceeds the Bank of England’s 2% target. Motor fuel prices rose by 21.3% compared to the previous year. The Bank of England maintained its benchmark rate at 3.75% on July 29. The decision was split 6-3 in favor of keeping rates steady, with three members voting for an increase to 4%. The voting results reflect ongoing concerns about inflationary pressures.
Business surveys provided mixed signals at the beginning of the third quarter. The manufacturing purchasing managers’ index (PMI) declined to 51.9 in July from 52.5 in June. Although this was a four-month low, it remained above the expansion threshold of 50. Meanwhile, a preliminary composite index rose to 52.1 from 49.3. This broader measure, which includes manufacturing and services, indicated renewed growth in the private sector during July.
Investment and Employment Growth Show Signs of Weakness
Business investment increased by 0.9% in the first quarter, following a 3% decline in the previous three months. Nonetheless, it remained 1.3% below its level from a year earlier. EY projects a 0.7% decline in business investment for 2026, down from its earlier forecast of no change. For 2027, the firm predicts investment will grow by 1.8%, and by 2.6% in 2028. Both estimates are lower than previously expected.
During the three months ending in June, the UK had 712,000 job vacancies. This number fell by 7,000 compared to the previous quarter and was 2.5% lower than a year earlier. Out of the 18 industries surveyed, vacancies decreased in 10. The quarterly change was within the survey’s confidence interval. Meanwhile, regular pay rose by 3.4% from March to May. The latest data reflect ongoing economic growth, despite inflation being above target, weaker hiring activity, and reduced business investment over the past year.