Is Britain headed for a recession? Ernst & Young (EY) believes that it is if the Strait of Hormuz remains closed for the remainder of the year. The last UK recession was in 2023, when the economy was down by 0.1% from July to September and dipped further to 0.3% during the last quarter.
'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," EY UK Chief Economist Peter Arnold said.
Bright Prospects If Hormuz Opens in Two Months
The accounting firm sees a major upturn if Hormuz opens by September. It is eyeing an economic growth of 0.8%. However, the body of water remains in limbo as the US-Iran war continues, affecting the world economy.
According to EY, Britain's growth will slow down by 0.5% if the strait remains closed. By 2027, the economy will be down by 0.2%. Inflation is expected to rise to 6.4% in that scenario. Even if Hormuz reopens in September, inflation is expected to persist, though at a lower rate of 3.5%.
The Strait of Hormuz is an essential channel for global energy. Its closure is driving the skyrocketing petrol prices, a situation some analysts say Iran is exploiting for leverage. Petrol drives many businesses, which then leads to inflation of general consumer goods and food. Hormuz was closed in February 2026, reopened briefly in June, and closed again in July.
What Continued Hormuz Closure Means for Households
The UK does not need to be directly involved in the war—its role so far has been limited defensive support for the US—to feel the impact of the hostilities. The cost of living is expected to rise along with the prices of gasoline, food and other goods. Europe's ongoing heatwave adds further strain.
While the UK has generally cooled in the last few days, the threat of renewed high temperatures is still on the horizon, which means increased energy use. All of these make it harder to ignore a possible recession. An increase in all points would make it harder for small businesses to survive while large firms could be forced to downsize and bring forth massive layoffs.
This would then lead to massive unemployment and underemployment, further eroding consumer spending power and placing additional stress on small businesses. Despite all these, experts are not predicting the worst—not yet, at least.
'The UK economy has proved more resilient than many expected this year, prompting a modest upgrade to our growth forecast,' Arnold also said. 'Ongoing disruption to global energy markets will now start to test this economic resilience.'
Resilience Amid the US-Iran War
The UK economy has also shown resilience when the economy grew by 0.1% in May even when the Strait of Hormuz remained closed. Just a month earlier, the economy was down by 0.1%, which marked a swift rebound. This suggests that while the Strait of Hormuz exerts significant infuence, it is not the sole factor shaping Britain's economic performance.
