UK RECESSION RISK IF STRAIT OF HORMUZ STAYS CLOSED INTO 2027

Britain's economy could enter recession next year if the Strait of Hormuz remains closed until early or mid-2027, according to EY's latest economic outlook. Under this adverse scenario, gross domestic product could contract by 0.2 per cent in 2026, following growth of just 0.5 per cent this year. Inflation could rise to 6.4 per cent by the end of 2026 under prolonged disruption to global energy markets. Peter Arnold, EY UK chief economist, stated that the UK economy has demonstrated unexpected resilience but that extended disruption to energy markets would test this strength.

EY's base case forecast presents a more optimistic picture if the Strait of Hormuz reopens by the end of the third quarter of this year. In that scenario, the consultancy upgraded its 2026 growth outlook to 0.9 per cent. The forecast also anticipates the Bank of England holding interest rates at 3.75 per cent until late 2026. Two rate cuts are expected in April and July 2027, bringing rates to 3.25 per cent by the end of 2027.

EY's analysis underscores the significance of the Strait of Hormuz to the British economy's trajectory. The waterway is a critical chokepoint for global oil and gas supplies. The consultancy's projections present two markedly different economic paths depending on the duration of any closure or blockade affecting the strategic route.