GLA Economics published its latest macroeconomic scenarios-based forecast for London on 19^th June. The two main outcome variables are real Gross Value Added (GVA) – a measure of London’s output – and workforce jobs (WFJ) – a measure of employment. We project both variables over the medium term (to the end of 2027). Further, we have developed three main macroeconomic scenarios for London founded on three sets of plausible narratives for the economy.

• Fast recovery (an optimistic but plausible scenario)
• Gradual economic recovery (the GLA Economics baseline reference scenario)
• Slow recovery (a plausible downside scenario)

These scenarios are not definite predictions about the only possible paths for the economy, nor do they necessarily incorporate optimal policy responses. Instead, they use judgements around several key assumptions. The key dimensions of variation focus on resilience to external shocks, such as geopolitical tensions, energy price volatility, and disruptions to global trade, as well as the timing and scale of rate cuts as inflation stabilises and economic conditions improve. The scenarios do not capture the full range of uncertainty about the future, which is likely to be much wider.

The UK economy began 2025 with strong momentum, growing 0.7% in Q1, driven mainly by net trade and inventory changes. However, momentum weakened in Q2 so far. Inflation also remains elevated above the Bank of England’s 2% central symmetrical target.

The Monetary Policy Committee (MPC), facing lacklustre growth and persistent price pressures, has reduced interest rates four times since last summer to 4.25%. Despite divisions within the MPC, market expectations anticipate two further quarter-point cuts this year, with the next anticipated in September. However, escalating geopolitical tensions in the Middle East have recently driven oil prices up sharply, posing renewed inflation risks. If these tensions persist, the Bank of England may be unable to proceed with near-term interest rate cuts, complicating the monetary policy outlook.

Labour market conditions have recently cooled after prolonged tightness with unemployment rising a touch. Job postings have declined, particularly in consumer-facing sectors. Further constraints emerge from tighter immigration regulations post-Brexit, exacerbating labour shortages in some sectors.

Fiscal headroom in the UK remains constrained by elevated public debt, which continue to limit London’s capacity for targeted investment in critical sectors such as transport, housing, innovation, and skills development. The 2025 Spending Review sets tight public expenditure limits, with modest real-terms growth in departmental budgets over the next few years. These fiscal constraints and policy directions will influence London’s growth prospects and the delivery of major infrastructure and social programmes in the medium term.

Despite recent trade deals between the US and UK and the EU and UK, trade frictions remain. Financial market volatility, driven by geopolitical tensions and fragmented global supply chains, further complicates London’s economic outlook. Although trade diversion opportunities are limited by London’s industrial capacity, niche opportunities may still arise in legal and advisory services.

Despite these challenges, London is forecast to outperform the national average, benefiting from diverse, high-value service sectors, sustained consumer confidence buoyed by higher average incomes, and government investment. Under the baseline scenario, real GVA growth is projected at 1.6% in 2025, rising to 1.9% by 2027, driven primarily by finance, professional services, technology, and a recovering tourism sector. However, London’s economy will likely remain below pre-pandemic projections due to lingering economic scarring and structural constraints.

The fast recovery scenario envisions a quicker rebound, with inflation stabilising faster, enabling earlier interest rate cuts by the Bank of England. London’s higher aggregate incomes and stronger consumer confidence would buffer cost-of-living pressures, fostering stronger spending and investment cycles, potentially eliminating long-term scarring.

Conversely, the slow recovery scenario anticipates subdued growth amid prolonged geopolitical uncertainty, weaker global demand, and persistent productivity challenges. Real incomes remain constrained, particularly for lower-income households, due to sustained inflationary pressures, high borrowing costs, and tighter financial conditions. Further supply chain disruptions and reduced investment exacerbate productivity declines. Housing affordability pressures, worsened by higher interest rates, restrict consumer spending and overall growth. Inflation risks may rebound if external shocks intensify.

Figures A1 and A2 illustrate the estimated scenario paths for London’s output and jobs, visually capturing potential recovery outcomes amid these complex dynamics.

Figure A1: Scenario paths for London’s output over the medium term

Source: GLA Economics projections, built on ONS historical data; Note: level of output indexed to Q4 2022 100

Figure A2: Scenario paths for London’s workforce jobs over the medium term

Source: GLA Economics projections, built on ONS historical data; Note: level of output indexed to Q4 2022 100

The main results are presented below:

Headline forecast for London’s GVA and workforce jobs (2025 to 2027)

• Under the gradual economic recovery scenario, London’s real GVA growth forecast has been revised downward for the medium term. The December 2024 projections for 2025 and 2026 were 1.9% and 2.2%, respectively, whereas the latest forecasts now show more moderate growth of 1.6% in 2025 and 1.7% in 2026, extending to 1.9% in 2027 (Figure A3).
• Similarly, workforce jobs growth has been adjusted downward for the same period. The December 2024 forecasts expected workforce jobs to increase by 1.5% in 2025 and 1.6% in 2026, but current projections indicate slower growth of 0.8% in 2025 and 1.0% in 2026, with a modest pick-up to 1.3% in 2027 (Figure A4).
• These revisions reflect a more cautious medium-term outlook, influenced by evolving economic conditions, and labour market challenges observed since the December 2024 forecast.

Figure A3: Medium-term real GVA projections, annual growth rates

Source: GLA Economics, ONS

Figure A4: Medium-term real Workforce jobs projections, annual growth rates

Source: GLA Economics, ONS

Sectoral output recoveries in the medium term (2025 to 2027)

• London’s real GVA growth is set to vary across sectors, reflecting ongoing structural shifts and evolving macroeconomic conditions (Table A1).

• Service-based sectors continue to be main engines of growth, with particularly good performances expected in Administrative and support service activities, and Arts, entertainment and recreation. These industries benefit from resilient consumer demand and a sustained recovery of discretionary spending.

• London’s key knowledge-intensive industries, including Professional, scientific and technical activities and Information and communication, are forecast to expand steadily, reinforcing their pivotal role as core drivers of the capital’s economic output.

• Goods-producing sectors show mixed trajectories. While Manufacturing is projected to experience modest but positive growth by 2027, Construction is expected to pick up more noticeably over the forecast period as large infrastructure and commercial development projects come online and the delayed effects of housing policy support materialise.

• The Transportation and storage sector is poised for a gradual recovery, with growth strengthening through 2027. This is driven by improving trade flows, rising demand for e-commerce logistics, continued return-to-office plans, tourism rebounds, and renewed investment in transport infrastructure across London.

• Public services, notably Education and Human health and social work activities, maintain output growth in later years, reflecting ongoing public sector stability and demand.

• Real estate activities are forecast to grow consistently through 2027, supported by improving market confidence and stabilising interest rates, though growth may moderate slightly over time.

• Overall, London’s GVA growth in the medium term reflects strong contributions from consumer-facing services and knowledge-intensive industries, helping to balance out weaker or more volatile performances in selected goods-producing and utilities sectors.

Table A1: Real GVA projections, annual growth rates

Source: GLA Economics

Sectoral employment growth in the medium term (2025 to 2027)

• Workforce job projections indicate broad-based growth in London’s labour market through 2025 and beyond, though sectoral performance varies (Table A2).

• Goods-producing industries continue to face challenges, with Manufacturing showing only modest growth and some related sectors experiencing contractions or slow gains.

• Contrary to previous expectations, Wholesale and retail trade is forecast to show modest employment growth rather than contraction, reflecting some resilience despite ongoing cost-of-living pressures and structural shifts toward e-commerce. However, the sector’s growth remains subdued due to constrained consumer spending and changing retail dynamics.

• London’s core specialist service sectors, such as Professional, scientific and technical activities and Information and communication, are forecast to maintain steady and even accelerating workforce expansion, supporting the city’s knowledge economy.

• Public sector-led areas, including Education and Human health and social work activities, remain stable contributors to employment growth, reflecting ongoing public service demand.

• Overall, London’s labour market outlook is characterised by resilient service sector growth and targeted gains in energy and public services, balancing more mixed prospects in traditional goods industries and household-related activities.

Table A2: Workforce jobs projections, annual growth rates

Source: GLA Economics

The scenario results presented in this supplement come within a context of continuing unprecedented uncertainty. Overall, GLA Economics judges that risks are tilted to the downside. Structural challenges such as high housing costs, limited infrastructure capacity and skills mismatches in the labour market continue to weigh on London’s economy. Rising rents and elevated mortgage rates reduce household affordability and constrain consumer spending, while businesses face higher costs and productivity bottlenecks. The global economic environment with weaker growth, supply chain disruptions and shifting trade patterns puts pressure on London’s export sectors and investment climate. Geopolitical uncertainties, driven by energy price volatility, trade protectionism and ongoing conflicts, increase costs and disrupt economic stability. GLA Economics will continue to track the economic data to review these forecasts in the future. Future updates will continue to be published on the London Datastore.