UK Economy Faces Recession if Strait of Hormuz Remains Closed

Britain's economy is facing a recession if the Strait of Hormuz remains closed to shipping beyond next year, according to forecasters at EY. The UK Chief Economist Peter Arnold warned that an extended closure into 2027 would raise inflation and could push the economy into contraction.

Under this scenario, EY predicts that the UK growth will slow down to 0.5% this year from a previous estimate of 1.2% in 2027 if the Strait reopens by the end of September. The economy is expected to shrink by 0.2% next year if the closure persists.

The forecasters also expect inflation to rise to 6.4% by the end of 2026, compared to a lower peak of 3.5% this year if the Strait reopens in the coming months. The Bank of England's forecasts last week showed the economy growing by close to 1% next year under an adverse scenario.

Despite these warnings, EY expects the Bank of England to keep interest rates on hold this year and then cut them next year from 3.75% to 3.25% with moves in April and July.