EY warns about the risk of recession for the UK economy via the Strait of Hormuz

• EY predicts a recession risk for the UK economy, assuming that the Strait of Hormuz is closed either for a prolonged period or in the middle of 2027.
• Under an alternative scenario, the negative impact on GDP could be 0.5% in 2026 and 0.2% in 2027, while inflation could rise to 6.4% by the end of 2026.
• If the Strait of Hormuz is closed until the end of the third quarter of 2026, EY expects a decline of 0.9% in 2026 and 1.2% in 2027, with this being accompanied by an increase in prices.

Consulting company EY says in its report that the UK economy could enter a recession in the coming year if the Strait of Hormuz is closed either for a prolonged period or in the middle of 2027. In winter, the negative impact on gross domestic product (GDP) could amount to 0.5% in 2026 and 0.2% in 2027.

The report also notes that under the scenario, the negative impact on growth could reach 6.4% by the end of 2026 through higher fuel and energy prices. It also points out that in such a scenario the price of oil could rise by 3.75% by the end of 2026, while by the second half of 2027 it would be 3.25% higher compared to the end of 2026.

EY economist warns that if the Strait of Hormuz is closed until the end of the third quarter of 2026. That is why EY predicts a negative impact on inflation: 0.9% in 2026 to 1.2% in 2027.

EY’s chief economist for the UK, Peter Arnold, who provided the materials, notes that the UK’s economy would be hit hardest by the energy price shock, which would be accompanied by a global increase in energy prices. The economist also notes that the global energy price increases could be passed on to UK consumers.

Tim from EY’s UK office, John Healey, who identifies himself as a former adviser, said that the readiness to respond to the gas price crisis could be ensured by the price of gas. The materials also state that Healey wrote for Sunday Telegraph, describing in his articles that the country’s energy prices could be affected by the gas price shock.

The materials also say that the Bank of England assumes that a disruption of supply due to the closure of the Strait of Hormuz could push inflation up to 4% in the coming year. The report also notes that CPI inflation, driven by higher prices, would rise to 2.6%, while core inflation would be 3.2% by the end of the year.

Tags: Europe/Middle East/Economy/Energy