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Introduction: UK economy faces recession if Strait of Hormuz remains closed

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

EY has started the week with a caution that the UK might slip into recession next year if the Strait of Hormuz stays closed.

The consultant’s newest economic outlook indicates that gross domestic product could ease sharply to 0.5% this year and shrink by 0.2% next year if the conflict continues and the key waterway - through which a fifth of the world’s oil and gas normally travels - stays shut until early or mid-2027.

By contrast, if the strait reopens by the end of the third quarter this year, EY’s base case forecast points to fairly steady growth of 0.9% in 2026 and 1.2% in 2027.

Peter Arnold, EY UK chief economist, noted that although the UK economy proved more resilient than many anticipated this year (leading his team to lift its growth forecast for the year from 0.8% in May to 0.9%), uncertainty remains.

Continued disruption in global energy markets will now begin to test this resilience. Should the Strait of Hormuz reopen soon, we expect the UK to steer clear of a sharper slowdown, yet a prolonged closure into 2027 would lift inflation and might tip the economy into contraction next year. As expansion grows harder to maintain, the UK will likely depend more on the sectors that have supported performance lately, especially technology and high-value business services. Meanwhile, ongoing challenges in construction remain a worry. Higher project costs, ongoing labour shortages and weak productivity growth could limit major infrastructure delivery when demand stays strong. Boosting productivity in the sector will be vital if the UK is to meet its infrastructure goals while aiding wider economic growth.

The warning arrives as oil prices have eased today, with the international benchmark Brent crude now down around 5% to $83.49 a barrel as tensions in the Middle East ease.

Over the weekend, Donald Trump stated he halted planned military action against Iran after “rapidly” securing a deal on its nuclear programme and the full reopening of the Strait of Hormuz.

The US president paused the strikes expecting a breakthrough and following requests from Iran and other regional countries, he said on his Truth Social platform on Saturday.

He wrote:

Based on this request, I have agreed, for the future benefit of the WORLD and, likewise, the survival of a successful and prosperous Iran, to cancel the attack, subject to being able to rapidly make a DEAL.

Elsewhere this morning, reports indicate the UK drugmaker AstraZeneca is discussing a combination with US rival Bristol Myers Squibb, in a transaction that would form a pharmaceutical group valued at nearly $400bn.

The Financial Times first reported that the companies have held talks about a tie-up in recent months, citing unnamed sources familiar with the matter.

AstraZeneca, London’s second most valuable listed company, has a market value of about £196bn, while BMS is worth roughly $133bn. A combination would create one of the largest pharmaceutical companies globally.

The agenda

9am BST: Eurozone manufacturing PMI
9.30am BST: UK manufacturing PMI
3pm BST: US manufacturing PMI

Key events

1m agoAstraZeneca shares fall sharply after merger talks with Bristol Myers Squibb
25m agoHiring for UK graduates at lowest level since pandemic
1h agoEuropean stock markets rally as oil price drops
2h agoEasyJet extends takeover deadline for suitor Castlelake
2h agoHealey promises to 'clamp down' on supermarket price gouging
2h agoIntroduction: UK economy faces recession if Strait of Hormuz remains closed

AstraZeneca shares drop sharply after merger talks with Bristol Myers Squibb

AstraZeneca is the weakest performer across the FTSE 100 today, with its shares down 6% after news emerged that the drugmaker is discussing a takeover of its US rival Bristol Myers Squibb in a deal that would create a near-$400bn (£300bn) pharmaceutical group.

AstraZeneca, led by its longtime chief executive Pascal Soriot, is the second-biggest listed company in the UK, with a market value of nearly £196bn before the news. BMS, headquartered in Princeton and known for its cancer treatments, is worth $133bn.

A tie-up would rank among the largest-ever pharmaceutical deals and create the world’s fourth-largest drugmaker by market value. The talks were first reported by the Financial Times.

Hiring for UK graduates at lowest level since pandemic

Job postings for UK graduates reached their lowest level since 2020, according to a survey by the jobs platform Indeed.

It found that overall vacancies dropped 11% between the start of 2026 and 17 July, and were 32% lower than before the pandemic. Graduate job postings fell 7% year-on-year, and are at the lowest level for the time of year since 2020.

Jack Kennedy, senior economist at Indeed, said:

The UK’s labour market is under sustained pressure. Hiring demand is falling across most parts of the economy, while posted wage growth is gradually cooling. That is particularly challenging for graduates and younger workers, who are competing for fewer opportunities to gain an initial foothold.

Meanwhile summer job postings, which are normally taken up by students and other young people, are at their weakest level in four years.

It comes as Andy Burnham faces a growing youth unemployment crisis, with roughly 1 million 16-24 year-olds (about one in eight) not in jobs, training or education. The new prime minister said last week that schools across England should adapt their curriculums to the needs of local businesses as part of a devolution drive aimed at tackling the jobs crisis for young people.

European stock markets rally as oil price drops

European stocks and bonds are rallying this morning as the oil price falls - the Stoxx Europe 600, which tracks the biggest companies on the continent, is up 0.5%.

The UK’s blue chip FTSE 100 index is however flat this morning, with shares in the likes of BP and Shell down 2.8% and 2% respectively on the back of a weaker oil price.

The mid-cap FTSE 250 is rising, up 0.8%, with shares in the shipping group Clarkson’s shooting up 15% after it reported its best ever profit for the first half of the year on the back of disruption in the Middle East.

The drop in the oil price this morning is also helping gilt yields to fall back, with the 10-year yield down 6 basis points to 4.98%.

Kathleen Brooks, of the broker XTB, says the drop in oil prices should help support markets today.

Overnight, president Trump said that negotiations to find a peace deal with Iran could start today, which has led Brent crude to fall back towards $83 per barrel. This will ease inflation fears and could also act as a dampener on bond yields, which rose sharply last week, especially at the long end, where 30-year US Treasury yields jumped to their highest level for 19 years. This is another huge week for financial markets. Firstly, there is a large amount of fresh economic data, including the latest labour market data from the US. 20% of the S&P 500 report earnings this week, including Palantir and SanDisk. SpaceX will also release its first earnings report on Tuesday. The market wants to know if the tech sell-off is over, what the yen will do next after unprecedented multilateral intervention to prop up the currency, and US Treasury yields are also in focus. If anyone thought things would be quiet for markets this August, they are only heating up.

EasyJet extends takeover deadline for suitor Castlelake

EasyJet has extended its deadline for suitor Castlelake to decide whether to make a firm takeover offer for the business.

Castlelake’s “put up or shut up” deadline has been pushed to 7 August from 3 August, matching rival bidder Apollo’s existing deadline.

The budget airline said it has been providing diligence access to both Apollo and Castlelake since the last proposal was made. It most recently backed a £5.7bn takeover offer from Apollo in July, which trumped an earlier £5.5bn bid by Castlelake.

There are still some questions hanging over the deal, including a potential EU review of rules around airline ownership.

Last month the company reported a 70% slide in profits because of soaring fuel costs and later bookings as a result of the conflict in Iran.

The shipping group Clarkson’s has reported its best ever half-year performance this morning, benefiting from disruption in the Middle East.

Its pre-tax profit shot up 56% to £61.5m in the first six months of the year, compared with the same period in 2025.

While conflict in the region has introduced dangers and delays across the shipping industry, it has also triggered a sharp rise in tanker and gas carrier rates. Shares in Clarkson’s have already risen by about 24% so far this year.

Chief executive officer Andi Case said:

Clarksons delivered a record first half performance, reflecting both the investment into our underlying business and the exceptional volatility caused by the disruption to global trade from global conflict including the situation in the Strait of Hormuz. We expect the full year performance of the group to be materially ahead of market expectations.

Healey promises to 'clamp down' on supermarket price gouging

The warning from EY follows comments from the new chancellor, John Healey, that the government is standing by to prevent the public from “being taken for a ride at the pump or the till” as the Iran war continues to hit prices.

While he said there had been “no significant evidence of so-called price gouging” during the crisis, he used a weekend column to tell the big retailers that ministers were “watching closely” for any signs of profiteering.

Healey faces a difficult economic balancing act as the energy price shock caused by the months-long conflict in the Middle East reignites the cost of living crisis.

Last week the Bank of England kept UK interest rates on hold as it warned that a further escalation in the Iran war could drive inflation above 4% next year, adding to financial pressures on households.

Healey wrote in the Sunday Telegraph:

The conflict affects our national security, our UK bases, personnel and allies in the Middle East. But it also threatens our economic security: impacting the family finances of millions of British people. And I know that many British businesses have been put under pressure by increasing costs too. Conflict and uncertainty increases inflation, threatens growth and pushes up costs for businesses and governments alike.

Introduction: UK economy faces recession if Strait of Hormuz remains closed

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

EY has kicked off the week with a warning that the UK could fall into recession next year if the Strait of Hormuz remains closed.

The consultant’s latest economic outlook has suggested that gross domestic product (GDP) could slow sharply to 0.5% this year and contract by 0.2% next year if the conflict is not resolved and the vital waterway - through which a fifth of the world’s oil and gas is normally carried - remains shut until early or mid-2027.

On the other hand, if the strait reopens by the end of the third quarter of this year, EY’s base case forecast suggests growth will remain fairly resilient, at 0.9% in 2026 and 1.2% in 2027.

Peter Arnold, EY UK chief economist, said although the UK economy was more resilient than many expected this year (which has prompted his team to upgrade its growth forecast for the year from an 0.8% estimate made in May to 0.9%), there is still uncertainty ahead.

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.