London’s economy picks up pace as sales rise and price pressures start to ease

New survey data shows London growing faster than any other UK region in July, though job cuts and cost pressures show the recovery is still fragile.

London’s private sector businesses grew at a faster pace in July, driven by stronger sales and a cooling in the price pressures that have squeezed firms for much of the year, according to the latest NatWest UK Regional Growth Tracker, published in partnership with S&P Global.

The headline London Business Activity Index — which measures month-on-month changes in combined output across the capital’s manufacturing and services firms — rose from 54.1 in June to 55.3 in July. Any reading above 50 signals growth, so this marks the second straight month that London’s expansion has accelerated, and puts the capital ahead of every other UK region tracked in the survey.

How London Compares to the Rest of the UK

What makes July’s figures notable isn’t just that London grew — it’s how far ahead of everywhere else it grew. London’s 55.3 reading topped the national rankings, ahead of the South East on 53.2 and Northern Ireland on 51.4. By contrast, Scotland (47.3) and Yorkshire & Humber (49.1) were the only two UK regions where output actually shrank in July.

That’s a meaningful shift from June, when growth was far more limited — confined largely to London, the South East and the North East, while Northern Ireland recorded the sharpest drop in output of any region. Ten of the twelve UK regions and nations tracked saw activity accelerate in July, suggesting the improvement wasn’t unique to the capital, but London still pulled clearly ahead of the pack.

What’s Driving the Growth

The main engine behind London’s acceleration was demand. New orders rose for the 12th consecutive month, and London recorded the fastest growth in new business of any UK region in July, with firms reporting stronger client demand and a pickup in European markets specifically.

Catherine van Weenen, NatWest’s Regional Managing Director for Commercial Mid-Market, London & South East, said solid sales growth combined with a cooling in price pressures helped push output growth to its fastest pace in three months. She added that this improvement has encouraged more companies to plan fresh investment, on the expectation that sales revenue will keep climbing through the rest of the year.

Inflation Pressure Is Easing, But Hasn’t Disappeared

Cost pressures remain real. Businesses reported sharp increases in input costs during July, pointing to higher prices for IT components, fuel, transport and wages. But the rate at which those costs are rising has now slowed for three consecutive months, down from a multi-year peak recorded in April.

That cooling is starting to show up in what customers actually pay. Output charge inflation — how much businesses are raising their own prices — slowed to its weakest level since February, and London was among the regions recording the softest price increases nationally in July.

Van Weenen linked much of the earlier cost surge to the conflict in the Middle East, noting that after a spike in price pressures tied to the conflict, July brought a further easing of that trend for London firms, translating into smaller increases in what businesses charge customers. It’s a useful reminder that some of the inflation squeeze British businesses have faced this year has roots outside the domestic economy entirely — in global energy and shipping costs — rather than purely domestic demand or wage growth.

The Job Market Remains the Weak Link

Not every part of the picture improved. London businesses continued cutting headcount in July, mostly through natural attrition (not replacing staff who leave) rather than active layoffs. Still, the pace of those job losses slowed to its weakest point so far in 2026, and the mildest decline recorded in seven months.

There were tentative signs of a turnaround, too: some firms reported selective recruitment as part of longer-term investment plans, an early hint that stronger demand could eventually start feeding through into new hiring rather than just fewer departures. It’s not a hiring boom by any means, but a slowdown in job losses paired with pockets of selective recruitment is typically what a labour market looks like just before it stabilises — worth watching in the coming months rather than treating as confirmed yet.

Backlogs Steady, Confidence Improves — Cautiously

Outstanding work, or backlogs, stabilised in London during July after three straight months of decline — a contrast with the picture across the UK as a whole, where unfinished business edged down slightly. Stable backlogs generally suggest firms have enough incoming work to keep pace with what they’re completing, without either falling behind or running short of jobs.

Business confidence in the capital also improved in July, though expectations remain below where they stood at the start of the year. Companies continued to flag geopolitical risk and high operating costs as ongoing constraints, even while stronger demand forecasts and investment plans gave grounds for cautious optimism.

The Bigger Picture

Taken together, the data point to an economy building momentum rather than one that has fully shaken off its cost pressures. Demand is strengthening, confidence is recovering, and inflation is easing — but with hiring still net-negative and firms citing global uncertainty, this looks more like the early stage of a recovery than a decisive turning point.

For a wider sense of what’s changed, it’s worth noting London’s business activity index sat below the 50 growth threshold as recently as May 2025, when confidence had fallen amid broader economic pressure. The swing to 55.3 just over a year later shows how quickly sentiment can shift in either direction — a pattern likely to continue as businesses navigate the rest of 2026.

This article is based on the NatWest UK Regional Growth Tracker, compiled by S&P Global from its UK Purchasing Managers’ Index (PMI) surveys.