Britain could slip into recession next year if the Strait of Hormuz stays shut into 2027, with GDP growth slowing to just 0.5 percent in 2026 before contracting 0.2 percent the following year. The blockade, imposed by Iranian forces accusing Washington of violating a ceasefire agreement, follows US President Donald Trump's declaration on July 8 that the June 18 truce with Iran was no longer in effect.
Surging oil and energy costs could push British inflation to 6.4 percent by year-end, up from 2.6 percent recorded in June. The Bank of England has held interest rates at 3.75 percent but signaled readiness to raise them if the conflict persists. Business investment is forecast to decline 0.7 percent in 2026.
Should the waterway reopen by the end of the third quarter, EY projects a revised 0.9 percent expansion this year and 1.2 percent growth in 2027, with rates expected to fall to 3.25 percent by late 2027.