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Britain's economy could slip into recession in 2027 if the Strait of Hormuz remains closed to global shipping beyond the middle of next year, according to new forecasts released by EY on Monday. The accounting firm's latest outlook highlights the growing economic risks posed by prolonged disruptions to one of the world's most important energy trade routes.
EY slightly adjusted its forecast for the UK economy, expecting growth of 0.8% in 2026 if the Strait of Hormuz reopens by the end of September. Under that baseline scenario, economic growth is projected to accelerate to 1.2% in 2027, supported by easing energy prices and improving business confidence.
However, the firm warned that an extended closure into 2027 would significantly worsen the outlook. EY estimates UK economic growth would slow to 0.5% this year, while the economy would contract by 0.2% in 2027 if shipping disruptions continue into early or mid-2027.
Peter Arnold, EY UK's Chief Economist, said the duration of the Strait's closure will be a critical factor for Britain's economic performance. He noted that reopening the waterway in the coming months would likely help the UK avoid a deeper downturn, while a prolonged shutdown would fuel inflation and weaken economic activity.
Inflation is expected to surge under the adverse scenario. EY forecasts UK inflation could climb to 6.4% by the end of 2026 if the Strait remains closed, compared with a much lower peak of 3.5% if shipping resumes before the end of September.
The Bank of England recently outlined a separate downside scenario in which oil and gas prices remain 30% to 60% above current market expectations. Even under those assumptions, the central bank still projects the UK economy to expand by nearly 1% in 2027, with quarterly inflation peaking around 4.5%.
Despite the uncertainty, EY expects the Bank of England to keep interest rates unchanged for the rest of this year before reducing the benchmark rate from 3.75% to 3.25% through two rate cuts in April and July 2027, assuming inflation pressures gradually ease.
