EY slashes UK growth forecast as energy crisis hammers outlook

(Sharecast News) - EY has slashed its UK economic growth forecast by 0.5 percentage points this year as the ongoing conflict and tensions in the Middle East continues to disrupt energy supplies worldwide. The consultancy estimates that GDP will grow by just 0.8% in 2026, down from 1.4% growth in 2025, with an expected rise in energy bills expected to push inflation to above 4% by the end of the year.

Prior to the outbreak of the war in Iran, where hostilities began at the end of February, EY had expected the economy to expand by 1.3% in 2026.

"The disruption to global energy supply and subsequent effect on prices and inflation are now predicted to weigh on the UK's economic momentum, slowing GDP growth to 0.8% this year," the firm said in updated forecasts on Tuesday.

GDP growth is then expected to accelerate to 1.2% in 2027, though this also remains below projections before the conflict began. EY said that high industrial energy costs already have a £30bn drag on economic output in the UK.

The forecast came just one day after the ITEM Club's prediction that the energy crisis could result in the net loss of 163,000 jobs in the UK this year, equal to a 0.4% decline in employment.

EY's latest modelling is based on the Strait of Hormuz reopening by the end of the second quarter, though tanker traffic is expected to remain subdued until the disruption fully clears. However, if the vital trade route remains closed until the end of 2026, EY said that GDP growth could ease to just 0.3% this year.

"The UK has been a resilient market in recent years, but high electricity prices continue to put pressure on industrial businesses and limit investment appetite," said Anna Anthony, the regional managing partner for EY UK and Ireland.

"Businesses are continuing to grapple with the very real consequences of global volatility: turbulent energy prices, supply chain disruption, inflation and elevated interest rates. Making strategic investment decisions in this environment is challenging but critical as companies look to adapt, build resilience and continue to compete internationally."