The UK economy could fall into recession next year if shipping through the Strait of Hormuz remains disrupted into 2027, according to a warning from economic forecasters EY.
The accountancy firm's latest forecast suggests the economy could contract by 0.2% in 2027 if the strategically important waterway remains closed until early or mid-next year.
The outlook assumes the Strait reopens by the end of September. Under that scenario, EY expects the UK economy to grow by 0.8% this year and 1.2% in 2027.
But a prolonged closure would have a significantly more damaging impact, with higher energy costs feeding through to inflation and putting further pressure on households and businesses.
"If the Strait of Hormuz reopens in the coming months, we expect the UK to avoid a more pronounced downturn," said Peter Arnold, EY's UK chief economist.
"An extended closure into 2027 would raise inflation and could push the economy into contraction next year."
Under EY's more severe scenario, UK growth would slow to 0.5% in 2026, while inflation could reach 6.4% by the end of the year.
That compares with an expected inflation peak of 3.5% if shipping through the Strait resumes within the next few months.
The Strait of Hormuz is a critical route for global oil and gas supplies, meaning prolonged disruption can quickly drive up energy prices and increase costs across the wider economy.
The Bank of England last week also modelled a scenario in which oil and gas prices remained 30% to 60% above market expectations. Even under that scenario, its forecasts showed the UK economy growing by almost 1% next year, although quarterly inflation was projected to peak at 4.5%.
EY expects the Bank to leave interest rates unchanged for the remainder of this year before cutting them from 3.75% to 3.25% in 2027, with reductions expected in April and July.
The forecasts underline the uncertainty facing the UK economy, with the duration of disruption in the Strait of Hormuz emerging as a key factor in determining the path of inflation, interest rates and economic growth.
