EY Warns UK Economy at Risk of Shrinkage in 2027 If Strait of Hormuz Remains Closed

Britain's economy is at risk of shrinking in 2027 if the Strait of Hormuz remains closed to shipping, according to forecasters at accountants EY. The company slightly increased its growth forecast for this year to 0.8% from 0.9%, based on the assumption that the strait will reopen by the end of September.

However, if the Strait of Hormuz stays shut until early to mid-2027, UK growth this year is expected to slow to 0.5%, and the economy will contract by 0.2% in 2027, EY warned. Inflation would also rise to 6.4% by the end of 2026 under that scenario, compared to a lower peak of 3.5% this year if the strait reopens soon.

These predictions come despite a recent forecast from the Bank of England, which showed the economy growing close to 1% next year under an adverse scenario where oil and gas prices remain 30-60% higher than expected. EY expects the Bank of England to keep interest rates on hold this year and then cut them next year from 3.75% to 3.25% in April and July.