UK faces recession if Strait of Hormuz stays closed, forecaster warns
2027 may see economic contraction if the waterway’s closure extends, says EY
Add BT as a preferred source
[LONDON] Britain’s economy is likely to shrink in 2027 if the Strait of Hormuz does not reopen to shipping before the middle of that year, forecasters at accountants EY warned on Monday (Aug 3).
EY slightly nudged up its growth forecast for 2026 to 0.8 per cent, on the basis that the strait reopens by the end of September, and sees growth of 1.2 per cent in 2027 on that basis.
“If the Strait of Hormuz reopens in the coming months, we expect the UK to avoid a more pronounced downturn, but an extended closure into 2027 would raise inflation and could push the economy into contraction next year,” EY UK chief economist Peter Arnold said.
EY predicts that if the Strait of Hormuz remains shut until early to mid 2027, UK growth in 2026 will slow to 0.5 per cent and that the economy will shrink 0.2 per cent in 2027
Inflation is likely to rise to 6.4 per cent by the end of 2026 under that scenario, compared with a lower peak of 3.5 per cent in 2026 if the strait reopens in the next couple of months.
Bank of England (BOE) forecasts last week, under an adverse scenario where oil and gas prices remain 30 per cent to 60 per cent higher than markets expect, still showed the economy growing by close to 1 per cent in 2027 while quarterly inflation peaked at 4.5 per cent.
EY expects the BOE to keep interest rates on hold in 2026 and then cut them in 2027 from 3.75 per cent to 3.25 per cent with moves in April and July. REUTERS
Decoding Asia newsletter: your guide to navigating Asia in a new global order. Sign up here to get Decoding Asia newsletter. Delivered to your inbox. Free.
Share with us your feedback on BT's products and services
