Global Market: UK growth at risk as EY flags inflation surge from Hormuz disruption

Britain's economy could contract in 2027 if the Strait of Hormuz remains closed to shipping until the middle of next year, according to new forecasts from accounting firm EY, highlighting the potential economic fallout from prolonged disruptions to global energy supplies, Reuters reported.

According to Reuters, EY expects the UK economy to expand by 0.8% in 2026 if the vital shipping route reopens by the end of September, before growing 1.2% in 2027 under its base-case scenario.

However, EY's downside scenario paints a much weaker outlook if the Strait of Hormuz remains shut into early or mid-2027. Under that assumption, UK economic growth would slow to 0.5% this year, while the economy would contract by 0.2% in 2027.


The forecasts underscore the UK's vulnerability to sustained increases in global energy prices, given the strategic importance of the Strait of Hormuz for oil and liquefied natural gas shipments.

EY also expects inflationary pressures to intensify sharply under a prolonged closure scenario. Consumer price inflation could climb to 6.4% by the end of 2026 if shipping disruptions persist, compared with a peak of 3.5% this year if the Strait reopens within the next few months.

The projections are notably more pessimistic than the Bank of England's latest stress scenario. The central bank last week estimated that even if oil and gas prices remained 30% to 60% above current market expectations, the UK economy would still grow by nearly 1% next year, while quarterly inflation would peak at 4.5%.

On monetary policy, EY expects the Bank of England to keep interest rates unchanged for the remainder of this year. According to Reuters, the firm anticipates the central bank will begin easing policy next year, lowering its benchmark interest rate from 3.75% to 3.25% through two quarter-point cuts in April and July.

EY's outlook highlights how geopolitical tensions affecting one of the world's most critical energy transit routes could significantly alter the UK's growth and inflation trajectory over the next two years.