LONDON, UNITED KINGDOM / RankWire.AI / – The UK’s gross domestic product increased by 0.6% in the first quarter, according to official data, following a 0.1% rise at the end of 2025. The economy remains 0.9% above its level from the same period last year. The services sector grew by 0.8%, making the largest contribution to the quarterly expansion. Household consumption was also up by 0.6%. Since a technical recession requires two consecutive quarterly contractions, the current data does not indicate that the UK is in one.
Forecasts from EY highlight increased pressure from global energy disruptions, with the firm raising its 2026 growth outlook to 0.9% from 0.8% in May. The 2027 forecast remains steady at 1.2%. This projection assumes the Strait of Hormuz reopens by September and tanker traffic remains subdued. Conversely, EY’s adverse scenario predicts growth of 0.5% in 2023 and a 0.2% decline in 2027.
Energy prices continue to be a crucial link connecting the Iran conflict with the UK economic outlook. The Strait of Hormuz accounts for a significant portion of global oil and liquefied natural gas shipments. Consequently, UK prices are influenced by disruptions in international markets, even though the country’s direct reliance on Gulf supplies is limited. Producer input costs increased by 7.3% in the year ending June. Specifically, crude oil inputs jumped by 42.3%, while factory-gate prices rose by 3.5%.
Inflation and interest rates remain high
Consumer inflation decreased to 2.6% in June from 2.8% in May, yet it still exceeds the Bank of England’s 2% target. Motor fuel prices are 21.3% higher than they were a year earlier. On July 29, the Bank of England maintained its Bank Rate at 3.75%, with a 6-3 voting split. While three policymakers supported raising the rate to 4%, the bank explained that energy effects are expected to push inflation higher later this year.
Indicators from business surveys offer additional insights into the UK’s economic momentum. The manufacturing purchasing managers’ index declined to 51.9 in July from 52.5 in June, marking a four-month low but still above the 50-point threshold that signals expansion. Meanwhile, a preliminary composite index increased to 52.1 from 49.3 in June, covering both manufacturing and services, suggesting a renewed growth in the private sector at the start of July.
Investment and employment growth slow down
Business investment grew by 0.9% in the first quarter after experiencing a 3% decline in the previous three months. However, it remains 1.3% lower than its level one year earlier. EY has now revised down its 2026 forecast for business investment to a 0.7% decline from its earlier projection of no change. The consultancy anticipates growth of 1.8% in 2027 and 2.6% in 2028, both below previous estimates.
Labor demand also showed signs of softening in the latest official data. UK vacancies decreased by 7,000 to 712,000 during April through June, a quarterly fall of 0.9%. This decline was seen across 10 of 18 sectors, although it stayed within the survey’s confidence interval. Meanwhile, regular pay increased by 3.4% annually from March to May. Current data reveal positive output figures paired with inflation exceeding targets, softer hiring activity, and business investment below last year’s level.