UK Economy Faces Downside Risk as Tailwinds Fading

The UK economy experienced strong growth in the second quarter of 2026, but this momentum may be short-lived. The de-escalation of the conflict in the Middle East and the World Cup helped boost GDP to 0.3%, potentially putting Britain on track for record growth among G10 economies in the first half of the year.

However, investors are aware that these tailwinds may fade soon. A prolonged blockade of the Strait of Hormuz could pose a significant risk to the UK economy, with Treasury forecasts predicting growth could slow to 0.9% in 2026 and 0.3% in 2027 if the world's main oil supply route remains closed.

The futures market has not yet priced in these risks, instead maintaining expectations of one Bank of England rate hike by December 2026 and a second by September 2027. However, even these expectations may be overly optimistic, according to ING.