UK recession warning: Strait of Hormuz closure could spark 6% inflation and reverse growth
According to EY's UK Economic Outlook Summer 2026 report, the UK may face recession in H2 2026 if the Strait of Hormuz remains closed. Despite a relatively robust economic momentum in Q2 2026, driven by lower-than-expected inflation and falling global energy prices, a return to full-blown conflict and an extended closure of the Strait could see UK inflation peak above 6 per cent and economic growth go into reverse.
The report notes that increased energy prices are a further headwind to the UK labour market, which has already loosened considerably since 2024. Unemployment pressures remain most pronounced in consumer-facing sectors, where weak consumer demand and higher labour costs are weighing on hiring.
High-value business-facing services sectors continue to drive the majority of UK growth, supported by strong exports. The country enters this period under its seventh prime minister in a decade, with economic challenges remaining familiar, including a constrained fiscal position limiting the government's room for manoeuvre.