LONDON, UNITED KINGDOM / RankWire.AI / – Britain’s economy continued to expand in early 2026, but inflation, investment and hiring data showed persistent pressure. EY forecasts UK gross domestic product growth of 0.9% this year and 1.2% in 2027. The firm raised its 2026 estimate by 0.1 percentage point from May. Its central forecast assumes the Strait of Hormuz reopens by September. Shipping volumes would remain below normal under that projection.
Official data indicated the UK economy grew 0.6% during the first quarter. Growth followed a 0.1% increase in the final quarter of 2025. Output stood 0.9% higher than one year earlier. The services sector expanded 0.8% and drove most of the quarterly increase. Household spending rose 0.6% during the same period. The figures do not meet the definition of a technical recession, which requires two straight quarterly contractions.
Energy markets continue to be a significant source of pressure on UK prices and production costs. The Strait of Hormuz handles a large share of global oil and liquefied natural gas shipments. While Britain imports limited energy directly from Gulf suppliers, international prices influence domestic fuel costs. Producer input prices increased 7.3% in the year through June. Crude oil input costs surged 42.3%, with factory-gate prices climbing 3.5%.
Inflation Keeps Monetary Policy in Focus
Consumer price inflation eased to 2.6% in June from 2.8% in May. Despite this decline, the rate remains above the Bank of England’s 2% target. Motor fuel prices increased 21.3% from a year earlier. The Bank of England maintained its benchmark rate at 3.75% on July 29. Policymakers voted 6-3 for no change, with three members supporting an increase to 4%. This voting pattern reflects ongoing concern about price pressures.
Initial business surveys presented mixed signals at the beginning of the third quarter. The manufacturing purchasing managers’ index dropped to 51.9 in July from 52.5 in June. Although this was a four-month low, it still indicated expansion, as it stayed above the 50 threshold. A preliminary composite index increased to 52.1 from 49.3, a broader indicator that covers manufacturing and services, which recorded renewed private-sector growth in July.
Weakness Remains in Investment and Labour Market Demand
Business investment grew by 0.9% in the first quarter following a 3% decline during the previous three months. Nonetheless, investment was still 1.3% below its level from the same period last year. EY predicts a 0.7% decline in business investment for 2026, revising its earlier forecast of no change. The firm projects growth of 1.8% in 2027 and 2.6% in 2028, though both estimates are below previous expectations.
During the three months through June, the UK reported 712,000 job vacancies. This figure decreased by 7,000 from the previous quarter and fell 2.5% year-over-year. The decline was seen across 10 of the 18 industries surveyed. The quarterly change remained within the survey’s confidence interval. Regular pay increased by 3.4% from March through May. The latest data reflect ongoing economic growth amid above-target inflation, weaker hiring activity, and reduced annual business investment.
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