If the Strait of Hormuz is closed into next year, the British economy could fall into recession by 2027, according to the world’s most influential accounting and professional services company EY. And if one of the world’s key energy transit routes was disrupted for a short time, inflationary pressures could re-emerge and the country’s fragile recovery would be destroyed.
The strategic waterway accounts for a significant share of global crude oil and liquefied natural gas supplies, so the UK's overall outlook will depend dramatically on how quickly normal shipping schedules can be resumed through the passage. EY gave two economic scenarios for the passage given the time it has been held up. If the strait reopened before the end of September 2026, the UK economy will grow with a modest 0.8 per cent rate and then increase to 1.2 per cent growth in 2027.
On the other hand, if the shipping disruption continues into early or mid-2027, the economic impact would be far more serious. Economic growth in 2026 would decrease to 0.5 per cent and the whole economy would shrink by 0.2 per cent the next year. Peter Arnold, chief economist at EY UK, said that a quick reopening in the next few months would avoid a deeper recession in the UK, and a longer closure would increase inflation and eventually lead to an economic contraction.
The inflationary pressures and consumer impact. Besides the immediate growth numbers, a sustained shutdown of the maritime route threatens to trigger another huge surge in global energy prices. Higher energy costs would cascade down quickly, increasing operational costs for domestic businesses and utility bills for consumers to rise and causing a fresh upsurge for consumer prices.
EY estimates that UK inflation could peak as high as 6.4 per cent by 2026 for the extended disruption model. This contrasts with the milder picture where shipping resumes soon and inflation falls to a much lower level of 3.5 per cent. Higher energy costs will curb consumer spending power and business investment will suffer.
Diverging Outlooks and Monetary Policy expectations. Despite the cautious approach taken by EY, these projections are far more pessimistic than the latest adverse economic scenarios presented to the Bank of England. The central bank has even simulated scenarios in which world oil and natural gas prices stay high by 30-60 per cent beyond market expectations. Even with those conditions, the central bank thought the UK economy would grow around 1 per cent in the next year and quarterly inflation will still be around 4.5 per cent.
If monetary policy action is in hand in the future, EY believes that the Bank of England will keep interest rates unchanged throughout 2026 and monetary easing will not occur until economic stability returns in 2027.
