LONDON, UNITED KINGDOM / RankWire.AI / – The UK economy continued its expansion into early 2026, yet persistent inflationary pressures, along with investment and employment figures, highlight ongoing challenges. EY projects the nation’s gross domestic product will grow by 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 projection assumes the Strait of Hormuz reopens by September, with shipping volumes remaining below normal levels under this scenario.
Official statistics reveal 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 increased by 0.9%. The services sector grew by 0.8%, contributing most significantly to the quarterly rise. Household expenditure also increased by 0.6% during this period. These figures do not qualify as a technical recession, which would require two consecutive quarterly contractions.
Energy markets remain a primary factor exerting pressure 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 suppliers, global prices influence domestic fuel costs. Producer input prices rose by 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 remains a key factor shaping monetary policy
Consumer price inflation slowed to 2.6% in June from 2.8% in May. Despite this easing, the rate stays above the Bank of England’s 2% target. Motor fuel prices rose by 21.3% compared to the previous year. On July 29, the Bank of England maintained its benchmark rate at 3.75%. Policymakers voted 6-3 to keep the rate unchanged, with three members favoring an increase to 4%. The voting results reflect ongoing concerns about inflationary pressures.
Early third-quarter business surveys presented mixed signals. The manufacturing purchasing managers’ index fell to 51.9 in July from 52.5 in June, marking a four-month low but still indicating expansion since it remains above 50. Meanwhile, a preliminary composite index increased to 52.1 from 49.3, encompassing both manufacturing and services, and indicating renewed private-sector growth in July.
Investment activity and employment demand remain subdued
In the first quarter, business investment increased by 0.9%, following a 3% decline over the previous three months. Nonetheless, total investment remains 1.3% below its level from a year earlier. EY anticipates a 0.7% decrease in business investment for 2026, revising its previous forecast of no change. However, the firm forecasts growth of 1.8% in 2027 and 2.6% in 2028, both below earlier projections.
During the three months ending in June, the UK had 712,000 job vacancies, representing a decrease of 7,000 from the previous quarter and a 2.5% decline year-over-year. Ten of the 18 industries tracked saw vacancy decreases, although the quarterly change was within the survey’s confidence interval. Meanwhile, regular pay increased by 3.4% from March to May. The latest data illustrate ongoing economic growth amid inflation above target, weaker employment growth, and lower levels of annual business investment.
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