The UK economy could face a recession next year, according to a warning from EY's latest economic outlook. The forecast suggests that gross domestic product (GDP) could reduce to 0.5 per cent this year and contract by 0.2 per cent next year if the conflict between the US and Iran remains unresolved and the Strait of Hormuz stays shut.
This scenario could also lead to inflation soaring to 6.4 per cent by the end of 2026, driven by rising oil and energy prices. Peter Arnold, EY UK chief economist, stated that "ongoing disruption to global energy markets will now start to test this economic resilience."
EY has also revised its business investment forecast for 2026, predicting a fall of 0.7 per cent. This is a downgrade from its previous forecast, which anticipated business investment would remain stable.
Separately, the London stock market is anticipated to open positively after US President Donald Trump hinted at a potential deal between the US and Iran regarding the Strait of Hormuz. Trump indicated that Saudi Arabia, the UAE, Qatar, and Iran had requested he call off military strikes planned for the weekend, suggesting a deal on Hormuz and nuclear issues is near. Further talks between the US and Iran are scheduled for Monday afternoon.