Strait Closure Threatens UK Economy with Recession
A new report by EY warns that Britain's economy could be sent into recession next year if the Strait of Hormuz remains closed. The Strait, through which a fifth of the world's oil and gas is carried, has been disrupted due to Middle East conflict. If it stays shut until early or mid-2027, GDP growth could reach just 0.5% this year and contract by 0.2% next year.
The report also warns that inflation could soar to 6.4% by the end of 2026 due to surging oil and energy prices. However, if the Strait reopens by the end of the third quarter of this year, growth is expected to remain fairly resilient.
EY has upgraded its outlook to 0.9% expansion in 2026, having previously predicted 0.8%, and maintains its prediction for 1.2% growth in 2027. Interest rates are also expected to remain at 3.75% for the rest of this year before being cut twice next year.