August 3, 2026 | 01:35 pm
TEMPO.CO, Jakarta – The United Kingdom could fall into recession in 2027 if the Strait of Hormuz remains closed to shipping into next year, according to an economic outlook by Ernst & Young (EY).
The report warned that under a worst-case scenario, where the strategic waterway remains blocked until early or mid-2027, the UK economy would grow by only 0.5 percent in 2026 before contracting by 0.2 percent in 2027.
The prolonged closure could also push inflation sharply higher, with EY forecasting consumer price growth could reach 6.4 percent by the end of 2026 as oil and energy costs surge.
“If the Strait of Hormuz reopens in the coming months, we expect the UK to avoid a more pronounced downturn, but an extended closure into 2027 would raise inflation and could push the economy into contraction next year,” EY UK Chief Economist Peter Arnold said, as cited by Reuters.
The Strait of Hormuz, a key shipping route between the Persian Gulf and global markets, normally handles around one-fifth of the world’s oil and liquefied natural gas supplies. Disruptions to the waterway have raised concerns over global energy prices and economic growth.
Conflict Disrupts Energy Markets
The economic warning comes amid escalating tensions between the United States and Iran. U.S. President Donald Trump said on July 8 that a ceasefire agreement with Tehran, signed on June 18, was no longer in effect, after which U.S. forces resumed strikes on Iran.
The U.S. Central Command (CENTCOM) said the attacks were carried out in response to Iran’s actions against commercial vessels passing through the Strait of Hormuz.
Iran later retaliated by targeting U.S. military bases in the Middle East, blocking access to the Strait of Hormuz, and accusing Washington of violating the ceasefire agreement.
EY’s base-case forecast remains more optimistic if the waterway reopens soon. The consultancy slightly raised its UK growth projection for 2026 to 0.9 percent, assuming the strait resumes normal operations by the end of September, and maintained its forecast of 1.2 percent growth in 2027.
The report also expects the Bank of England to keep interest rates at 3.75 percent through 2026 before cutting rates twice in April and July 2027, bringing the rate down to 3.25 percent by the end of next year.
According to Independent, EY said household spending would likely remain weak as consumers face higher prices and delayed rate cuts. Consumer spending is projected to grow by only 0.3 percent in 2026 before improving to 0.9 percent in 2027.
“The UK economy has proved more resilient than many expected this year, prompting a modest upgrade to our growth forecast,” Arnold said. “Ongoing disruption to global energy markets will now start to test this economic resilience.”
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