Britain is facing a dangerous economic shock as a prolonged closure of the Strait of Hormuz threatens to send inflation soaring and push the economy into recession, according to a stark new forecast.
EY warned that the UK could see inflation more than double to 6.4 per cent by the end of the year under its worst-case scenario, as disruption to one of the world’s most important energy routes drives up oil and gas prices.
The consultancy said the economy could slow sharply, with GDP growth falling to just 0.5 per cent this year before contracting by 0.2 per cent in 2027 if the crisis continues.
The warning centres on the Strait of Hormuz, the narrow shipping route between the Gulf states and Iran that normally carries around a fifth of global oil and gas supplies. A prolonged shutdown would send energy costs higher, feeding through into household bills, transport costs and business expenses.
EY said Britain’s economic resilience would be severely tested if the disruption continued into next year.
However, the outlook could improve dramatically if diplomatic efforts succeed and the strait reopens before the end of September. Under that scenario, EY upgraded its forecast for UK growth to 0.9 per cent this year and 1.2 per cent in 2027.
Peter Arnold, EY’s chief economist for the UK, said the economy had performed better than expected but warned that global energy disruption represented a major threat.
“Ongoing disruption to global energy markets will now start to test this economic resilience,” he said.
The Bank of England has already signalled it may be forced to respond if the conflict drives inflation significantly higher. Interest rates remain at 3.75 per cent, with policymakers warning that prolonged energy shocks could complicate plans for future cuts.
Markets are now watching diplomatic efforts led by US President Donald Trump, who has said talks with Iran will take place as Washington pushes for a deal to reopen the strait and address nuclear concerns.
For Britain, the stakes extend far beyond foreign policy. A shipping route thousands of miles away has become a direct threat to inflation, interest rates and living standards at home.
The next few months could determine whether the UK avoids another economic downturn — or enters a new period of stagflation, with weak growth and rising prices arriving together.
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