EY Warns UK Economy Faces Recession if Strait of Hormuz Remains Closed

Forecasts by accountants EY suggest that if the Strait of Hormuz remains closed until early to mid 2027, the UK economy will contract in that year. According to their analysis, this would cause a significant increase in inflation, potentially reaching 6.4% by the end of 2026.

In an adverse scenario where oil and gas prices remain higher than expected, EY's predictions are gloomier. They expect growth to slow down to 0.5% this year if the Strait reopens in September, and shrink by 0.2% in 2027.

However, the Bank of England's forecasts from last week suggest a more resilient economy under similar circumstances. According to their estimates, the UK would still grow close to 1% next year while quarterly inflation peaked at 4.5%.

The EY report also suggests that the Bank of England will keep interest rates on hold this year before cutting them in April and July next year from 3.75% to 3.25%. This would be a response to the expected economic downturn if the Strait remains closed.

Speaking about the potential impact, EY's UK Chief Economist Peter Arnold stated that an extended closure of the Strait could raise inflation and push the economy into contraction next year.