The UK economy faces a potential recession next year if the Strait of Hormuz, a vital shipping route, remains closed until early or mid-2027, according to a warning from EY. The consultant's latest economic outlook suggests that gross domestic product (GDP) could slow to 0.5% this year and contract by 0.2% in 2027 under this scenario.
However, if the strait reopens by the end of the third quarter of this year, EY's base case forecast indicates more resilient growth of 0.9% in 2026 and 1.2% in 2027. Peter Arnold, EY UK chief economist, noted that while the UK economy has shown more resilience than anticipated this year, ongoing disruption to global energy markets will test this.
The warning coincides with comments from Chancellor John Healey, who stated the government is prepared to prevent the public from being overcharged as the Iran war continues to affect prices. Healey, writing in a weekend column, told major retailers that ministers are "watching closely" for any signs of profiteering, although he noted "no significant evidence of so-called price gouging" during the crisis.
The Chancellor highlighted that the conflict impacts national security and economic security, affecting family finances and putting pressure on British businesses through increased costs, inflation, and threats to growth. Last week, the Bank of England maintained UK interest rates, cautioning that an escalation in the Iran war could push inflation above 4% next year.