Hormuz Closure Threatens UK Economy with Recession

The Strait of Hormuz has become a major risk to the UK economy, according to EY. The firm warns that if the waterway remains closed due to the Iran conflict, Britain could enter recession in 2027. A prolonged closure would disrupt global energy markets and send oil prices sharply higher, leading to inflation and increased household bills.

In its economic outlook, EY predicts that if the Strait of Hormuz stays closed until early or mid-2027, UK economic growth would slow to 0.5% in 2026 before contracting by 0.2% in 2027. Inflation could rise to 6.4% by the end of 2026.

However, if the waterway reopens before the end of the third quarter of 2026, EY expects the UK economy to grow by 0.9% in 2026 and expand by 1.2% in 2027. The firm believes higher energy costs would make it harder for inflation to return to the Bank of England's 2% target.

As a result, EY expects interest rates to remain at 3.75% through the rest of 2026 before two possible cuts in April and July 2027, leaving rates at 3.25% by the end of the year. The Bank of England has already kept rates unchanged at 3.75%, signalling it could raise borrowing costs if the Iran conflict continues.