UK Economy at Risk of Recession as Strait of Hormuz Closure Looms

The UK economy is at risk of recession if the Strait of Hormuz remains closed until spring next year, economists warn. EY's latest economic outlook predicts a 0.2% contraction in 2027, driven by surging inflation that could more than double to 6.4%. The forecast assumes two quarters of negative growth in the first six months of the year.

Renewed tensions between the US and Iran have raised fears that the waterway, which carries 20% of the world's oil and gas, will remain shut for an extended period. Donald Trump said he had held off on new air strikes after agreeing to a deal, but Iran has not acknowledged any agreement.

Under EY's baseline forecast, inflation will rise from 2.6% to 3.5% if the Strait reopens by September. However, if it remains closed until early or mid-2027, inflation could hit 6.4%, dampening growth and pushing the economy into contraction.

Peter Arnold, EY's UK chief economist, said ongoing disruption to global energy markets will test the UK economy's resilience. He noted that construction will likely suffer due to rising project costs, labour shortages, and weak productivity growth.