LONDON, UNITED KINGDOM / RankWire.AI / – In the early months of 2026, Britain’s economy continued its expansion, even as persistent pressures from inflation, investment, and employment data persisted. EY projects the UK’s gross domestic product (GDP) will grow by 0.9% in 2026 and 1.2% in 2027, revising its 2026 forecast upward by 0.1 percentage points from May. The central scenario assumes the Strait of Hormuz reopens by September, though shipping volumes are expected to stay below normal levels under this forecast.
Official statistics revealed a 0.6% growth in the UK economy during the first quarter, following a 0.1% increase in the last quarter of 2025. Compared to the same period last year, output is up 0.9%. The services sector contributed most to the quarterly growth, expanding by 0.8%, while household expenditure also rose by 0.6%. These figures do not meet the criteria for a technical recession, which would require two consecutive quarterly contractions.
Energy markets continue to exert significant influence on UK prices and production costs. The Strait of Hormuz accounts for a substantial share of global oil and liquefied natural gas shipments. Although Britain imports limited energy directly from Gulf suppliers, domestic fuel prices are heavily affected by international market trends. Producer input costs 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 in Focus for Monetary Policy
Consumer price inflation eased slightly to 2.6% in June from 2.8% in May. Despite this decline, it stayed above the Bank of England’s 2% target. Motor fuel prices saw a 21.3% increase from the previous year. On July 29, the Bank of England maintained its benchmark rate at 3.75%. The decision was supported by a 6-3 vote for no change, with three members voting for an increase to 4%. This voting pattern indicates ongoing concern among policymakers about inflationary pressures.
Business surveys delivered mixed results at the beginning of the third quarter. The manufacturing purchasing managers’ index (PMI) dipped to 51.9 in July from 52.5 in June, marking a four-month low but still indicating expansion, as it remains above the 50 threshold. Meanwhile, a preliminary composite index increased to 52.1 from 49.3, reflecting renewed growth across manufacturing and services sectors during July.
Weakness in Investment and Employment Demand Continues
Business investment saw a 0.9% increase in the first quarter after a 3% decline in the previous three months, yet it remains 1.3% below the level recorded a year earlier. EY anticipates a 0.7% decrease in business investment across 2026, revising its earlier forecast of no change. For 2027 and 2028, the firm now projects growth of 1.8% and 2.6% respectively, both figures below its previous estimates.
During the three months through June, the UK had 712,000 job vacancies, a decrease of 7,000 from the previous quarter and a 2.5% drop compared to the same period last year. Declines occurred across 10 of the 18 sectors analyzed, but the quarterly change remained within the survey’s confidence interval. Regular pay rose by 3.4% from March to May. The latest data underscores continued economic expansion amid above-target inflation, subdued hiring, and lower annual business investment levels.