UK economy faces recession risk if Strait of Hormuz stays shut into 2027, EY warns

Economic forecasts darken

Britain's economy could slide into recession next year if the Strait of Hormuz remains closed into 2027, according to EY's latest economic outlook. The report warns that if the waterway (through which a fifth of the world's oil and gas is normally carried) stays shut until early or mid-2027, GDP would grow by just 0.5% this year and contract by 0.2% next year. Inflation could soar to 6.4% by the end of 2026 under this adverse scenario. The base case, assuming the strait reopens by the end of the third quarter, is more resilient: 0.9% growth in 2026 and 1.2% in 2027, with interest rates held at 3.75% for the rest of 2026 before two cuts in 2027.

The UK economy has proved more resilient than many expected this year, prompting a modest upgrade to our growth forecast. Ongoing disruption to global energy markets will now start to test this economic resilience.

Fuel theft surges at forecourts

Drivers have stolen almost £200,000 of fuel from UK petrol stations on average every day since the Iran war broke out on 28 February, according to Forecourt Eye. The value of stolen fuel is estimated to have risen by 48% compared with the five months before the conflict, reaching a daily average of £194,000. The number of daily incidents across the UK's 8,359 forecourts climbed from around 2,400 to 2,872, while the volume of stolen fuel rose 24% (from 87,000 litres to 108,900 litres a day). The company also reported an increase in "abuse, intimidation and violence from frustrated customers." Fuel prices peaked in April, fell after a June framework deal, then rose again when peace talks collapsed, with petrol last week hitting its highest level since 2022.

Household costs and political pressure

The Energy and Climate Intelligence Unit (ECIU) calculates the conflict is costing £25 million a week in extra energy costs. By next year, as higher gas prices feed through to domestic bills, the volatility will have added around £90 to the average Scottish household's energy costs. President Trump claimed on Sunday that the outline of a deal to end the five-month-old conflict has been agreed, though Iran's acting defence minister Majid Ibn al-Reza wrote on X that the country remains on alert. Trump faces domestic pressure to end the war before November's mid-term elections.

Healey's profiteering warning draws retailer backlash

Chancellor John Healey said the government is standing by to prevent the public "being taken for a ride at the pump or the till" as the conflict continues to hit prices. Writing in the Sunday Telegraph, he acknowledged "no significant evidence of so-called price gouging" but said ministers were "watching closely." The comments drew a sharp response from the British Retail Consortium.

Supermarkets operate in a highly competitive environment, delivering the most affordable food in western Europe. The government's independent competition regulator, the CMA, has repeatedly found that fierce competition between retailers, not government action, has kept food prices as low as possible.

The Bank of England held rates at 3.75% last week but signalled readiness to hike if the war persists. CPI inflation, recorded at 2.6% in June, is expected to peak around 3.2% later this year. EY cut its business investment forecast to a 0.7% fall in 2026, with consumer spending growth at just 0.3%.