Hormuz Closure Threatens UK Economy Growth and Inflation

UK Chief Economist Peter Arnold at EY is warning that Britain's economy may shrink in 2027 if the Strait of Hormuz does not reopen to shipping before mid-2023. The forecasters at accountants EY have slightly nudged up their growth forecast for this year to 0.8% from 0.9%, on the basis that the Strait reopens by the end of September.

This would mean UK growth this year will slow to 0.5% and the economy will shrink 0.2% in 2027 if the Strait remains shut until early to mid-2027, EY predicts. The inflation rate is likely to rise to 6.4% by the end of 2026 under that scenario.

The Bank of England forecasts last week showed the economy growing close to 1% next year while quarterly inflation peaked at 4.5%, even in an adverse scenario where oil and gas prices remain 30-60% higher than markets expect.