UK Economic Outlook Upgraded, but Iran War Disruption Looms

The UK economic outlook has been upgraded by EY, but the firm warns that prolonged disruption from the Iran war could halt growth in 2027.

EY's Economic Outlook now forecasts a 0.9% GDP growth for the UK in 2026, a slight increase from May's projection of 0.8%. However, if the Strait of Hormuz remains closed until early or mid-2027, the outlook suggests that UK GDP growth could fall to 0.5% this year and contract by 0.2% in 2027.

The report notes that oil prices had returned to pre-conflict levels sooner than predicted, preventing a more significant increase in inflation. However, the recent escalation of the conflict is expected to weigh on growth towards the end of the year.

EY expects UK inflation to rise to 3.5% by the end of 2026 if the Strait of Hormuz reopens by Q3, but could reach 6.4% if it remains closed until at least early 2027.