UK economy faces recession if Strait of Hormuz stays closed, EY warns

EY’s latest economic outlook warns that a prolonged closure of the Strait of Hormuz – a key waterway through which about one‑fifth of global oil and gas passes – could push the United Kingdom into recession. If the strait remains shut until early or mid‑2027, EY projects UK GDP growth slowing to 0.5 % this year and contracting by 0.2 % in 2027, with inflation potentially climbing to 6.4 % by the end of 2026. The firm expects interest rates to stay at 3.75 % through 2026 before being cut to 3.25 % in 2027. In a base‑case scenario where the strait reopens by the third quarter of this year, EY upgrades its forecast to 0.9 % growth in 2026 and 1.2 % in 2027. The Bank of England has signaled a hold on rates at 3.75 % and readiness to hike if the Iran‑related conflict persists, while also noting current CPI inflation at 2.6 % and a projected peak of around 3.2 % later this year. EY UK chief economist Peter Arnold highlighted the UK’s resilience but warned that extended disruption to global energy markets would test that resilience.