The forecaster said prolonged disruption in the Strait of Hormuz could lift inflation to 6.4% by end-2026, while a reopening by the end of September would keep 2027 growth at 1.2%.
Britain's economy is likely to contract in 2027 if the Strait of Hormuz does not reopen to shipping before the middle of next year, EY warned on Tuesday, underscoring how a prolonged energy supply shock could feed through to growth, inflation and interest-rate expectations. The accounting firm's economics team cut its 2026 UK growth forecast to 0.8% from 0.9%, assuming the waterway reopens by the end of September, and projected 1.2% growth in 2027 under the same baseline. If the strait stays shut until early to mid-2027, however, EY expects growth to slow to 0.5% in 2026 and the economy to shrink 0.2% in 2027, while inflation rises to 6.4% by the end of 2026. Peter Arnold, EY's chief economist for the UK, said a reopening within a few months would likely avoid a more severe slowdown, but an extended closure into 2027 could push the economy into contraction next year. By comparison, Bank of England forecasts published last week under a severe scenario of oil and gas prices running 30% to 60% above market expectations still showed growth of about 1% next year, with quarterly inflation peaking at 4.5%. EY expects the Bank of England to hold rates steady this year before cutting them from 3.75% to 3.25% in April and July next year.