UK Economy at Risk of Contraction if Hormuz Remains Closed

UK economic forecasters at EY have issued a warning about the country's future growth prospects. If the Strait of Hormuz remains closed to shipping, they predict that Britain's economy will contract in 2027.

EY has revised its growth forecast for this year upwards to 0.8% from 0.9%, assuming that the Strait reopens by September 30th. However, if it stays shut until early to mid-2027, they expect growth to slow down to 0.5% this year and shrink by 0.2% next year.

Under this scenario, inflation is forecasted to rise to 6.4% by the end of 2026, from a lower peak of 3.5% if the Strait reopens in the coming months. EY's UK Chief Economist Peter Arnold stated that 'an extended closure into 2027 would raise inflation and could push the economy into contraction next year.'

The forecasters also expect interest rates to remain steady this year at 3.75%, before being cut to 3.25% in July 2024.