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 showed 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 remain a key 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. Britain buys limited energy directly from Gulf suppliers, but international prices shape domestic fuel costs. Producer input prices increased 7.3% in the year through June. Crude oil input costs jumped 42.3%, while factory-gate prices climbed 3.5%.
Inflation keeps monetary policy in focus
Annual consumer price inflation eased to 2.6% in June from 2.8% in May. The rate remained above the Bank of England’s 2% target. Motor fuel prices increased 21.3% from a year earlier. The Bank of England held its benchmark rate at 3.75% on July 29. Policymakers voted 6-3 for no change, while three members supported an increase to 4%. The vote showed continued concern about price pressures.
Business surveys delivered mixed signals at the start of the third quarter. The manufacturing purchasing managers’ index slipped to 51.9 in July from 52.5 in June. The reading marked a four-month low but stayed above the 50 level that indicates expansion. A preliminary composite index rose to 52.1 from 49.3. That broader measure covers manufacturing and services and recorded renewed private-sector growth during July.
Investment and labour demand remain weak
Business investment rose 0.9% in the first quarter after falling 3% during the previous three months. Investment still stood 1.3% below its level one year earlier. 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 estimates sit below its earlier projections.
The UK recorded 712,000 job vacancies during the three months through June. That total fell by 7,000 from the previous quarter and by 2.5% from a year earlier. Vacancies declined across 10 of the 18 industries measured. The quarterly change remained within the survey’s confidence interval. Regular pay increased 3.4% during March through May. The latest figures show continued economic growth alongside above-target inflation, weaker hiring and lower annual business investment.