LONDON, UNITED KINGDOM / RankWire.AI / – In early 2026, the UK economy continued its expansion, despite sustained pressures from inflation, investment, and employment figures. EY projects a gross domestic product increase of 0.9% this year and 1.2% in 2027, revising its 2026 estimate upward by 0.1 percentage points from its May forecast. The central scenario assumes the Strait of Hormuz reopens by September, although shipping activity would likely stay below normal levels based on that outlook.
Data from official sources revealed a 0.6% growth in the UK economy during the first quarter, building on a 0.1% rise in the last quarter of 2025. Year-over-year, economic output was 0.9% higher. The services sector contributed most of the quarterly growth, expanding by 0.8%. Household expenditure also grew by 0.6% in the same period. These figures do not qualify as a technical recession, which requires two consecutive quarterly contractions.
Price and production costs in the UK continue to be heavily influenced by energy markets. The Strait of Hormuz, a significant route for global oil and liquefied natural gas shipments, affects prices worldwide. While the UK’s energy imports from Gulf nations are limited, global prices impact domestic fuel costs. Producer input prices increased by 7.3% over the year ending in June, with crude oil input costs soaring by 42.3%, and factory-gate prices rising by 3.5%.
Monetary policy remains in focus due to persistent inflation
Consumer price inflation eased slightly to 2.6% in June from 2.8% in May, yet still stayed above the Bank of England’s 2% target. Motor fuel prices surged by 21.3% compared to the previous year. On July 29, the Bank of England maintained its benchmark rate at 3.75%. The decision was a 6-3 vote for no change, with three members voting to raise it to 4%, reflecting ongoing concern about inflationary pressures.
Business surveys offered mixed signals at the start of Q3. 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 as it remained above 50. Conversely, a preliminary composite index increased to 52.1 from 49.3, encompassing both manufacturing and services, and signifying renewed growth in the private sector during July.
Investment activity and employment demand stay subdued
In the first quarter, business investment grew by 0.9%, reversing a 3% decline in the previous three months. Nonetheless, investment levels remained 1.3% below those from a year earlier. EY anticipates a 0.7% decline in business investment for 2026, a revision from its earlier forecast of no change annually. The firm projects growth of 1.8% in 2027 and 2.6% in 2028, both figures lower than previous estimates.
During the three months ending in June, the UK recorded 712,000 job vacancies, a decrease of 7,000 from the previous quarter and 2.5% less than a year earlier. Vacancy levels dropped across 10 out of 18 sectors measured, but the change remains within the survey’s confidence interval. Meanwhile, regular pay increased by 3.4% from March to May. The latest data indicates ongoing economic growth, persistent inflation above target levels, softer hiring trends, and a decline in annual business investment.