The UK economy may stagnate and slip close to recession if the Middle East conflict continues throughout the year, according to a report from EY. The analysis suggests that the economy will see growth of just 0.3% in 2026 if the Strait of Hormuz remains closed for the rest of the year. In a more optimistic scenario, growth could reach 0.8% if the strait reopens by the end of Q2. Before the conflict in Iran, the economy had been expected to expand by 1.3% this year. Peter Arnold, chief economist at EY UK, said: “The conflict in the Middle East means the UK economy is once again being shaped by external shocks.” Inflation is expected to rise to 4%, impacting interest rates and borrowing costs. EY also forecasts that unemployment could hit 5.8% by the end of this year before falling to 5.5% in 2027 and 5.2% in 2028.

Business groups in Scotland are urging the new government to prioritise economic growth. Gail Boag, chief executive of the Institute of Chartered Accountants of Scotland, said: “The immediate priority must be to set out a clear, coherent long-term economic direction that restores confidence and unlocks the investment Scotland needs,” adding that “delivering sustainable, viable growth will depend on decisive action to strengthen the country’s economic foundations, boost productivity and improve outcomes for people and communities.” She went on to stress “the importance of stable and predictable economic and tax policy.”

Households in the UK reduced their spending in April, marking the fastest decline in 18 months. According to Barclays, there was a 0.1% year-on-year drop in card spending, the first decline since November 2024. Non-essential spending fell by 0.3%, with travel expenses down 5.7%. Essential spending rose by 0.3%, with this driven by a 10.4% increase in fuel costs. Jack Meaning, chief UK economist at Barclays, said: “If confidence remains subdued for too long, it will be a challenge for households and businesses to weather the storm.” A survey conducted by Barclays found that 72% of consumers expect the conflict in the Middle East to impact the cost of living, with energy bills, inflation and food prices flagged as the areas of greatest concern.

UK Finance, a body representing around 300 firms that provide banking services, has launched a nine-point plan to stimulate growth in the sector, with chief executive David Postings stressing the need for “clear sequencing, strong accountability, and sustained collaboration” between the Government, regulators, and the industry. Warning that “regulatory tightening and risk aversion” has “become the norm” over the last twenty years, he argues that the result has been “anaemic growth.” Mr Postings said that a “relatively small increase” in the risk appetite of regulators could “allow significant growth,” and urged them to be “bold and positive.” The UK Finance report urges officials to improve the tax regime, saying the UK is “unusual in applying both a corporation tax surcharge and a balance sheet levy.” It adds that a “competitive tax environment is inseparable from a pro-growth regulatory framework.”

The Government is intensifying efforts to enhance cyber security among businesses. The initiative includes a £90m funding boost and a call for companies to adopt a Government-backed cyber pledge. Cyber security minister Baroness Lloyd said: “Cyber security is now fundamental to economic growth, job creation and the resilience of the services people rely on every day.” Figures from the Department for Science, Innovation and Technology reveal an 11% increase in the cyber industry over the last year, alongside a 20% rise in the number of firms.

High energy costs driven by green levies have reduced the UK economy by £30bn, according to EY. Peter Arnold, chief UK economist at EY, attributed this decline to a reliance on gas and the introduction of new levies. He said: “Policy costs to support new renewables… explain why energy prices have risen significantly higher in Britain.” Since 2019, energy-intensive industries have shrunk by 8%, while other sectors grew by over 6%.

Nikhil Rathi, chief executive of the Financial Conduct Authority, has told corporate leaders that “it is up to the boards to command the confidence of their shareholders and win votes if they wish to carry through their resolutions,” saying that this is “the foundation of company law in the UK.” Defending the City watchdog amid claims that it failed to protect British investment trusts targeted by Saba Capital, Mr Rathi said: “If boards think that something is vexatious, they should test their rights in court.”

British Steel is to be brought under public ownership, the Prime Minister has announced. Sir Keir Starmer said legislation will be introduced to allow the Government to take full control, subject to a public interest test. The move to nationalise the firm comes after the Government intervened last year, taking over its Scunthorpe steelworks from its Chinese owners, Jingye. Gareth Stace, director-general of UK Steel, welcomed the decision, saying it provides “vital certainty” for the workforce and customers, adding that nationalisation must be the “beginning of a clear and credible long-term plan for British Steel,” along with an investment strategy.

Eurostar, SBB, and SNCF Voyageurs have signed a memorandum of understanding to explore a direct rail connection between London and Switzerland, potentially operational by the 2030s. This development follows a cooperation agreement aimed at enhancing partnerships and expanding routes. Demand for international rail travel is rising due to uncertainties in aviation. Direct travel times are estimated at six hours to Zurich, five hours to Basel, and five and a half hours to Geneva.