UK faces recession if Strait of Hormuz stays closed, forecaster warns

LONDON: Britain’s economy is likely to shrink in 2027 if the Strait of Hormuz does not reopen to ​shipping before the middle of next year, forecasters at ‌accountants EY warned on Monday.

EY slightly nudged up its growth forecast for this year to 0.8% from 0.9%, on the basis that the ​Strait reopens by the end of September, and sees ​growth of 1.2% in 2027 on that basis.

“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.

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EY ​predicts that if the Strait of Hormuz remains shut ​until early to mid 2027, UK growth this year will slow to ‌0.5% ⁠and that the economy will shrink 0.2% in 2027.

Inflation is likely to rise to 6.4% by the end of 2026 under that scenario, compared with a lower peak of 3.5% this ​year if ​the Strait reopens ⁠in the next couple of months.

Bank of England forecasts last week, under an adverse scenario where ​oil and gas prices remain 30%-60% higher than ​markets ⁠expect, still showed the economy growing by close to 1% next year while quarterly inflation peaked at 4.5%.

EY expects the BoE ⁠to ​keep interest rates on hold this ​year and then cut them next year from 3.75% to 3.25% with moves ​in April and July.