LONDON, UNITED KINGDOM / RankWire.AI / – The UK’s economy kept growing in early 2026, even as inflation, investment, and hiring figures showed ongoing challenges. According to EY, the UK’s gross domestic product is projected to expand by 0.9% this year and by 1.2% in 2027. The firm increased its 2026 growth forecast by 0.1 percentage points from its May estimate. This forecast assumes the Strait of Hormuz reopens by September, though shipping volumes are expected to stay below normal under this scenario.
Official data revealed that the UK economy grew by 0.6% in the first quarter. This builds on a 0.1% increase in the last quarter of 2025. Year-over-year, output is 0.9% higher. The services sector expanded by 0.8%, contributing most to the quarterly growth. Household spending also rose by 0.6% in the same period. These figures do not qualify as a technical recession, which would require two consecutive quarterly contractions.
Energy markets continue to exert significant pressure on UK prices and costs. The Strait of Hormuz handles a large portion of global oil and liquefied natural gas shipments. The UK sources limited energy directly from Gulf suppliers, but global prices influence domestic fuel costs. Producer input costs increased by 7.3% in the year ending June. Crude oil input costs surged by 42.3%, while factory-gate prices went up by 3.5%.
Inflation remains a key factor in monetary policy decisions
Consumer price inflation inched down to 2.6% in June from 2.8% in May. Despite this decrease, the rate stays above the Bank of England’s 2% target. Motor fuel prices soared by 21.3% compared to the previous year. On July 29, the Bank of England kept its benchmark rate steady at 3.75%. The decision was supported by six members, while three favored raising it to 4%. The vote reflects ongoing concern about inflationary pressures.
Early third-quarter business surveys showed mixed signals. The manufacturing purchasing managers’ index fell to 51.9 in July from 52.5 in June. This was a four-month low, but it still indicated growth, as any reading above 50 signals expansion. Meanwhile, a preliminary composite index increased to 52.1 from 49.3. This broader index, covering manufacturing and services, indicated a rebound in private-sector activity during July.
Investment and hiring trends continue to weaken
Business investment grew by 0.9% in the first quarter, reversing a 3% decline in the previous three months. Nonetheless, it was still 1.3% below the level from a year earlier. EY predicts a 0.7% decline in business investment for 2026. Its previous forecast had shown no change. For 2027 and 2028, EY expects investment to grow by 1.8% and 2.6%, respectively. Both projections are lower than earlier estimates.
The UK had 712,000 job vacancies in the three months ending June. That number decreased by 7,000 from the previous quarter and by 2.5% from the same period last year. Vacancies declined across 10 of the 18 sectors measured. The quarterly change remains within the survey’s confidence interval. Meanwhile, regular pay increased by 3.4% from March to May. These figures point to continued economic growth amid above-target inflation, weaker hiring, and lower annual business investment.
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