LONDON, UNITED KINGDOM / RankWire.AI / – Britain’s economy expanded by 0.6% in the first quarter, following a 0.1% rise at the end of 2025, with annual output now 0.9% above the previous year. The latest data indicates that the services sector grew by 0.8%, largely driving the quarterly growth, while household spending increased by 0.6%. These figures do not qualify as a technical recession, which would require two consecutive quarterly declines.
Despite signs of ongoing growth, inflation, investment, and hiring data reveal persistent pressure on the economy. EY forecasts that the UK’s gross domestic product will grow by 0.9% in 2026 and 1.2% in 2027. The firm recently increased its 2026 growth estimate by 0.1 percentage points from its May projection. Its central forecast assumes the Strait of Hormuz reopens by September, although shipping volumes are expected to stay below normal levels under that scenario.
Official statistics show energy markets continue to exert significant influence on UK prices and production costs. The Strait of Hormuz handles a significant share of global oil and liquefied natural gas shipments. While Britain relies on limited direct energy imports from Gulf suppliers, international prices impact domestic fuel costs. Producer input prices increased by 7.3% in the year ending June, with crude oil input costs soaring by 42.3%, and factory-gate prices rising 3.5%.
Monetary Policy Remains Focused on Inflation
In June, the annual inflation rate decelerated slightly to 2.6% from 2.8% in May, yet it stayed above the Bank of England’s 2% target. Motor fuel prices surged by 21.3% year-over-year. On July 29, the Bank of England maintained its benchmark rate at 3.75%. The decision was split, with 6 members voting to hold and 3 supporting an increase to 4%, reflecting ongoing concerns about inflationary pressures.
Early third-quarter business surveys presented mixed signals. The manufacturing purchasing managers’ index dropped to 51.9 in July from 52.5 in June, marking a four-month low but remaining in expansion territory. Meanwhile, a preliminary composite index rose to 52.1 from 49.3, indicating renewed growth in the combined manufacturing and services sectors during July.
Weakness Persists in Investment and Labour Markets
Business investment increased by 0.9% in the first quarter after a 3% decline in the previous three months, though it remains 1.3% below the level of the same period last year. EY anticipates business investment will decline by 0.7% in 2026, a downgrade from its earlier forecast of no change. The firm projects a growth rate of 1.8% in 2027 and 2.6% in 2028, both below previous expectations.
During the three months ending in June, the UK had 712,000 job vacancies, down 7,000 from the prior quarter and 2.5% lower than a year earlier. Vacancies fell in 10 of the 18 sectors measured, though the change remained within the survey’s confidence interval. Regular pay increased by 3.4% from March to May. The latest figures depict a landscape of ongoing economic growth amid elevated inflation, subdued hiring, and reduced annual business investment.