London's Economy Today editorial - August 2026

28th August 2026 by Daryl Rozario, Jubair Ahmed, Gordon Douglass, and Sixia Zhang

UK economy saw continued growth in Q2 2026

The latest data from the Office for National Statistics (ONS) showed that the UK economy grew by 0.4% in the three months to June 2026, following a downwardly revised growth rate of 0.6% in the three months to May (see Figure 1). This was the seventh consecutive three-month period in which the economy expanded.

Figure 1: UK real three-month GDP growth, June 2025 to June 2026 Source: ONS

On a monthly basis, GDP grew by 0.3% in June, following no growth in May and a fall of 0.1% in April. The June result was stronger than expected, with economists polled by Reuters having forecast no monthly growth. The ONS noted that some businesses reported higher turnover associated with the FIFA World Cup and hot weather.

Looking at the three-month data in more detail, the ONS observed that the services sector, a particularly important sector for London, grew by 0.5%. Construction output increased by 0.3%, while production output showed no growth. Compared with the same period a year earlier, GDP was 1.1% higher in the three months to June 2026.

UK inflation rises in July

The ONS has also published new data on Consumer Price Index (CPI) inflation which showed that CPI inflation rose to 2.9% in the 12 months to July 2026, up from 2.6% in June (Figure 2). The July CPI level was in line with that expected by polled economists. CPIH inflation, a broader measure that includes owner occupiers’ housing costs, also rose in July to 3.1% year-on-year, up from 2.8% in the previous month.

Figure 2: CPI, goods, services and core annual inflation rates, UK, July 2021 to July 2026 Source: ONS, GLA Economics

The ONS reports that “housing and household services, and furniture made the largest upward contributions to the monthly change in both CPIH and CPI annual rates; transport made the largest, partially offsetting, downward contribution”. While, compared to other major European economies, the UK’s CPI rate “was higher than the first (or "flash") estimate of inflation for France (2.4%) and slightly above that for Germany (2.8%) in July 2026”.

Core CPI was unchanged from June at 2.6%. Services inflation slowed from 3.6% in June to 3.4% in July but remained above goods inflation, which rose from 1.7% to 2.2%, highlighting persistent domestic price pressures.

Although CPI inflation is above the Bank of England’s 2% target, it is still just within the Bank’s ±1% percentage point tolerance band. However, Ofgem has announced a rise in the energy price cap from October. The new cap will mean a typical annual household energy bill will cost £1,723, an increase of £60 a year or 4%. And while VAT is being cut on energy bills in October, analysts from Cornwall Insight forecast bills may rise by another 9% in the new year indicating continuing cost-of-living pressures.

London rents rise while house prices continue to fall

The latest ONS data showed that the average monthly private rent in London reached £2,317 in July 2026, the highest among English regions. This was 3.0% higher than a year earlier. By comparison, the average monthly private rent across the UK was £1,393, up by 3.7% over the same period.

In contrast, average London house prices fell by 2.6% in the year to June 2026. This was the tenth consecutive month in which London house prices declined on an annual basis. London continued to have the weakest annual house price growth of any English region and was the only region to record an annual fall. By comparison, average UK house prices increased by 2.0% over the same period. The contrasting trends indicate that renters continue to face rising housing costs even as conditions in London’s housing sales market soften.

In further housing related news the Government also announced plans on social and affordable housing in England this month. They plan to build 70,000 social and affordable homes in England over the next 10 years. Funding has been granted to Greater Manchester, the West Midlands, West Yorkshire, South Yorkshire, North East England, and Liverpool while London has been allocated £6bn in funding as well.

Latest GDP data for London points to stronger-than-expected economic growth in 2024 and 2025

Earlier this month, the ONS published its first quarterly regional GDP estimates since the series was suspended in 2023. These new figures showed London’s output grew by 6.2% in 2024 and by 7.4% over the first three quarters of 2025 (on a year earlier) in nominal terms (before adjusting for changes in prices across years), the strongest growth of any English or Welsh region. Growth was concentrated in a familiar set of sectors: information and communication grew by 9.3% in nominal terms in 2024 and 12.1% over the first three quarters of 2025, and professional, scientific and technical services by 6.3% and 7.4% over the same periods. Growth was also strong in the financial services and real estate sectors.

But a chunk of that nominal growth reflects rising prices rather than higher output. Adjusting for changes in prices, GLA Economics estimates real growth of around 2.1% in 2024 and 3.2% for the first three quarters in 2025 (Figure 3a and 3b) - still strong, and ahead of the independent forecasts (and our own nowcast) presented in Chapter 4 of our latest London’s Economic Outlook.

Figure 3a: Annual growth in London’s GDP, current prices Source: ONS quarterly regional GDP (current prices, seasonally adjusted) Note: the real-terms series is benchmarked to the annual (chained-volume) regional accounts to 2023; 2024–25 figures are derived by deflating the new current-price data with London-specific deflators held at the 2023 price relationship. They are provisional and should be read as indicative rather than definitive.

Figure 3b: Annual growth in London’s GDP, real terms GLA estimates Source: GLA Economics real-terms estimates Note: the real-terms series is benchmarked to the annual (chained-volume) regional accounts to 2023; 2024–25 figures are derived by deflating the new current-price data with London-specific deflators held at the 2023 price relationship. They are provisional and should be read as indicative rather than definitive.

The ONS classes this new series as ‘official statistics in development’ and expects to revise them to align with the more established annual regional accounts. Even so, they point to stronger recent growth than forecasters (us included) had expected.

London’s labour market is sluggish

The latest labour market data from the ONS suggests that labour market conditions in London are tepid. The data showed in the three months to June that the employment and unemployment rates have both declined, while the inactivity rate has risen. This may suggest that the decline in the unemployment rate is being driven by people leaving the labour force and becoming inactive. However, the ONS urges caution when interpreting short-term movements, given the data volatility issue in the Labour Force Survey.

Thus, in more detail, the employment rate in London was estimated at 73.9% for the three months ending June 2026, a decrease of 1.0 percentage points (pp) on the same period in the previous year, and a decrease on the quarter. While London’s unemployment rate was estimated at 6.5%, a decrease on the quarter and an increase of 0.5pp from a year earlier. And London’s inactivity rate (the measure of those not looking and/or not available to work) was estimated at 20.7%. This was an increase of 0.6pp on the previous year, and an increase on the quarter. It is lower than the UK-wide estimate of 20.9%. The more timely estimate of payrolled employees (subject to revision) showed a decrease of 6,600 (-0.2 percentage points) in the number of payrolled employees in London between June 2026 and July 2026, and a decrease of 0.8% on the year.

GLA Economics will continue to monitor these (and other) aspects of London’s economy over the coming months in our analysis and publications, which can be found on our publications page and on the London Datastore.