LONDON, UNITED KINGDOM / RankWire.AI / – The UK economy entered the second half of 2026 with growth intact, but several indicators showed weaker momentum. EY expects gross domestic product to rise 0.9% this year and 1.2% in 2027. The firm increased its 2026 forecast by 0.1 percentage point from its May estimate. Its central projection assumes the Strait of Hormuz reopens by September, with shipping activity still running below normal levels.
Official figures showed the economy expanded 0.6% in the first quarter after growing 0.1% in late 2025. Output stood 0.9% above its level a year earlier. Services grew 0.8% and made the largest contribution to the quarterly increase. Household consumption rose 0.6% during the same period. Britain therefore remained outside a technical recession, which requires economic output to fall for two consecutive quarters.
Higher energy costs have added pressure across the UK economy. The Strait of Hormuz carries a large share of global oil and liquefied natural gas shipments. Britain relies less on direct Gulf energy imports than some countries, but global prices still shape local costs. Producer input prices rose 7.3% in the year through June. Crude oil input costs increased 42.3%, while prices charged by manufacturers climbed 3.5%.
Inflation stays above the official target
Consumer price inflation eased to 2.6% in June from 2.8% in May. The rate still exceeded the Bank of England’s 2% target. Motor fuel prices rose 21.3% from a year earlier, adding pressure to household transport costs. The Bank of England kept its benchmark interest rate at 3.75% on July 29. Six policymakers supported no change, while three backed an increase to 4%.
Business surveys showed uneven conditions as the third quarter began. The manufacturing purchasing managers’ index fell to 51.9 in July from 52.5 in June. That reading marked a four-month low but remained above the 50 threshold that signals growth. A preliminary composite index increased to 52.1 from 49.3. The broader measure includes manufacturing and services and recorded a return to private-sector expansion.
Investment and recruitment show further strain
Business investment increased 0.9% during the first quarter after a 3% fall in the previous three months. Even with that improvement, investment remained 1.3% below its year-earlier level. EY expects business investment to decline 0.7% across 2026. Its previous forecast had shown no annual change. The firm projects investment growth of 1.8% in 2027 and 2.6% in 2028, both below earlier estimates.
Labour market figures also pointed to softer demand from employers. UK vacancies fell by 7,000 to 712,000 during the three months through June. The total dropped 0.9% from the previous quarter and 2.5% from a year earlier. Job openings declined in 10 of the 18 industries measured. Regular pay grew 3.4% during March through May. The data showed continued economic expansion alongside above-target inflation, weaker hiring and lower annual business investment.