UK Economy Faces Recession Threat from Strait of Hormuz Closure

Britain's economy is facing a possible recession in 2027 if the Strait of Hormuz does not reopen to shipping by mid-2026, according to forecasters at accountants EY.

EY slightly revised its growth forecast for this year up to 0.8% from 0.9%, assuming the Strait reopens by the end of September. The firm predicts that if the Strait remains shut until early to mid-2027, UK growth this year will slow down to 0.5% and the economy will shrink by 0.2% in 2027.

Under this scenario, inflation is likely to rise to 6.4% by the end of 2026, compared to a peak of 3.5% this year if the Strait reopens soon. This could be due to higher oil and gas prices, which would have a ripple effect on the economy.

Meanwhile, the Bank of England forecasts suggest that even under an adverse scenario with oil and gas prices remaining 30-60% higher than expected, the economy will still grow by close to 1% next year while quarterly inflation peaks at 4.5%.