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

UK economists at EY are warning of a potential recession if the Strait of Hormuz remains closed to shipping. The forecasters expect UK growth to slow down to 0.5% this year and shrink by 0.2% in 2027 if the Strait stays shut until early to mid-2027.

According to EY's Chief Economist Peter Arnold, an extended closure into 2027 would raise inflation and could push the economy into contraction next year. The forecasters predict that inflation will rise to 6.4% by the end of 2026 under this scenario, compared to a lower peak of 3.5% this year if the Strait reopens in the next couple of months.

Meanwhile, the Bank of England's forecasts last week showed the economy growing by close to 1% next year while quarterly inflation peaked at 4.5% under an adverse scenario where oil and gas prices remain 30%-60% higher than markets expect.