Hormuz Remains Closed Into 2027, According to a New EY Report That Also Warns Inflation Could Spike to 6.4% on Soaring Oil and Gas Prices

The accountancy firm's latest economic outlook presents a grim scenario if the Middle East conflict persists and the vital waterway—which normally carries a fifth of the world's oil and gas—stays shut until early or mid-2027. In that case, GDP would grow just 0.5% this year and contract 0.2% in 2026, while inflation would surge to 6.4% by end-2026. However, if the strait reopens by the third quarter of this year, EY's base case sees growth holding up. It has upgraded its 2026 forecast to 0.9% expansion (from 0.8%) and maintains 1.2% growth for 2027. Interest rates are expected to stay at 3.75% through 2026, then be cut twice in April and July next year, ending 2027 at 3.25%. The warning follows the Bank of England's decision last week to hold rates at 3.75%, while signaling readiness to hike if the Iran war drags on and fuels inflation.

The Bank projects CPI inflation—2.6% in June—to peak around 3.2% later this year before easing toward its 2% target. Peter Arnold, EY UK chief economist, said: "The UK economy has proved more resilient than many expected this year, prompting a modest upgrade to our growth forecast. Ongoing disruption to global energy markets will now start to test this economic resilience.

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. The report also cut its business investment forecast to a 0.7% fall in 2026, down from a previous prediction of stability. Household spending is expected to grow just 0.3% in 2026 before improving to 0.9% in 2027, as consumers face higher prices and delayed rate cuts."