Hormuz Closure Could Push UK Economy into Recession

Britain's economy is likely to face significant challenges if the Strait of Hormuz remains closed. Forecasters at EY, an accounting firm, warn that a prolonged closure could lead to recession in 2027.

The Strait of Hormuz is a critical shipping route between Europe and Asia, and its closure has already had a significant impact on global trade. According to EY's forecast, if the Strait remains shut until early to mid-2027, UK growth this year will slow to 0.5%, and the economy will shrink by 0.2% in 2027.

This scenario would also lead to higher inflation, with prices expected to rise to 6.4% by the end of 2026, compared to a lower peak of 3.5% this year if the Strait reopens in the next couple of months.

Meanwhile, the Bank of England's forecasts, which were released last week, suggest that even under an adverse scenario where oil and gas prices remain 30%-60% higher than expected, the economy will still grow by close to 1% next year while quarterly inflation peaks at 4.5%.

However, 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.