Britain's economy on thin ice if Hormuz stays shut, EY issues stark warning. Details inside

The UK economy could slip into contraction in 2027 if the Strait of Hormuz remains closed into next year, according to EY, which warned that a prolonged disruption to one of the world’s busiest energy routes could reignite inflation and derail Britain’s fragile economic recovery. In its recent forecast, the accounting firm said the outlook for the British economy would depend largely on how quickly shipping resumes through the strategically important waterway, which carries a significant share of global crude oil and liquefied natural gas supplies.

EY said that if the Strait of Hormuz reopens by the end of September, the UK economy is expected to grow by 0.8 per cent in 2026 and 1.2 per cent in 2027. However, if the disruption continues into early or mid-2027, economic growth would slow to 0.5 per cent in 2026 before the economy contracts by 0.2 per cent the following year.

“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,” Peter Arnold, EY UK Chief Economist, said.

Inflation fears mount - What's ahead?

EY warned that a prolonged shutdown of the Strait could trigger another surge in energy prices, raising costs for businesses and households while putting fresh upward pressure on inflation.

Under its extended disruption scenario, the firm expects UK inflation to climb to 6.4 per cent by the end of 2026. By comparison, inflation would peak at 3.5 per cent if shipping through the Strait resumes within the next few months.

Higher energy prices would also weaken consumer spending and business investment, making it more difficult for the economy to regain momentum, EY said.

Bank of England outlook more optimistic

EY’s assessment is more pessimistic than the Bank of England’s latest adverse scenario.

The central bank modelled a situation in which oil and gas prices remain between 30 and 60 per cent above market expectations. Even under those conditions, it projected the UK economy would continue to grow by close to 1 per cent next year, with quarterly inflation peaking at 4.5 per cent.

EY also expects the Bank of England to leave interest rates unchanged throughout 2026 before beginning to ease monetary policy in 2027.