UK Economy at Risk as Strait of Hormuz Closure Bites

The UK economy is at risk of contracting in 2027 if the Strait of Hormuz remains closed to shipping until mid-year, according to forecasts from accounting firm EY. The Strait's closure would disrupt global energy supplies and lead to a surge in inflation.

EY expects the UK economy to grow by 0.8% in 2026 if the Strait reopens by September, but this growth would slow to 0.5% in 2026 if shipping disruptions persist. The economy could contract by 0.2% in 2027 under a prolonged closure scenario.

The forecasts highlight the UK's vulnerability to sustained increases in global energy prices, given the Strait's strategic importance for oil and liquefied natural gas shipments. EY also expects inflationary pressures to intensify sharply under a prolonged closure scenario, with consumer price inflation potentially climbing to 6.4% by the end of 2026.

The projections are more pessimistic than the Bank of England's latest stress scenario, which estimated that even if oil and gas prices remained 30-60% above current market expectations, the UK economy would still grow by nearly 1% next year.