UK Economy at Risk of Contraction if Strait of Hormuz Remains Closed

Forecasts by accountants EY suggest that the UK economy may contract in 2027 if the Strait of Hormuz remains closed to shipping until early to mid-year.

EY's forecast assumes that the strait will reopen by September, allowing for growth of 1.2 per cent in 2027.

However, if the closure persists, EY expects UK growth to slow to 0.5 per cent in 2026 and shrink by 0.2 per cent in 2027.

The prolonged closure could also lead to higher inflation, potentially reaching 6.4 per cent by the end of 2026 compared to a lower peak of 3.5 per cent if the strait reopens soon.

Bank of England forecasts show that even under an adverse scenario where oil and gas prices remain 30-60 per cent higher than expected, the economy is still expected to grow by close to 1 per cent in 2027 while quarterly inflation peaks at 4.5 per cent.