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 continue to be a significant factor influencing UK prices and production costs. The Strait of Hormuz handles a large share of global oil and liquefied natural gas shipments. While Britain sources limited energy directly from Gulf suppliers, international prices heavily influence domestic fuel expenses. Producer input prices increased 7.3% in the year through June. Crude oil input costs surged by 42.3%, and factory-gate prices rose 3.5%.
Inflation Keeps Monetary Policy in Focus
Consumer price inflation for the year dipped to 2.6% in June from 2.8% in May. Nonetheless, it 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 a rise to 4%. The vote highlighted ongoing concerns about inflationary pressures.
Early third-quarter business surveys provided mixed signals. The manufacturing purchasing managers’ index dropped to 51.9 in July from 52.5 in June. Although this marked a four-month low, it stayed above the 50 threshold indicating expansion. A preliminary composite index increased to 52.1 from 49.3. This broader indicator, encompassing manufacturing and services, signaled renewed growth in the private sector during July.
Weakness Continues in Investment and Labour Market Demand
Business investment grew by 0.9% in the first quarter after decreasing 3% over the previous three months. Despite this, investment remained 1.3% below its level from one year prior. EY projects a 0.7% decline in business investment for 2026. Its prior forecast predicted no change year-over-year. The firm anticipates growth of 1.8% in 2027 and 2.6% in 2028, both figures below earlier estimates.
The UK recorded 712,000 job vacancies during the three months through June, a decline of 7,000 from the previous quarter and a 2.5% decrease from a year earlier. Vacancies fell across 10 of the 18 industries surveyed. The quarterly variation stayed within the survey’s confidence interval. Meanwhile, regular pay increased by 3.4% from March through May. The latest data reflects ongoing economic growth coupled with inflation above target, subdued hiring, and decreased annual business investment.