Hormuz Closure Threatens UK Recession

UK economists at EY are warning that the country's economy will contract in 2027 if the Strait of Hormuz does not reopen to shipping before mid-2024. This prediction comes from a slight adjustment to their growth forecast for this year, which has been nudged up to 0.8% on the assumption that the Strait reopens by the end of September.

In contrast, if the Strait remains shut until early to mid-2027, UK growth this year is expected to slow down to 0.5%, and the economy will shrink by 0.2% in 2027. Inflation would likely rise to 6.4% by the end of 2026 under this scenario, compared to a lower peak of 3.5% this year if the Strait reopens soon.

This warning from EY comes on the heels of recent Bank of England forecasts that showed the economy growing by close to 1% next year even in an adverse scenario where oil and gas prices remain 30-60% higher than expected. The BoE also predicted a quarterly inflation peak of 4.5% under this scenario.