London’s private sector stepped up its expansion in July as stronger sales, easing inflationary pressures and renewed investment plans helped the capital outperform other parts of the UK.
The headline London Business Activity Index rose from 54.1 in June to 55.3 in July, marking the second consecutive month in which output growth has accelerated. A reading above 50 indicates expansion.
The improvement was driven by a sustained increase in new business, with firms reporting stronger demand and a rebound in European markets. New orders rose for the 12th consecutive month, while London recorded the fastest increase in new order volumes among the UK regions monitored.
The figures provide a more positive signal for the capital’s economy as the second half of 2026 gets under way, although businesses remain exposed to high operating costs and geopolitical uncertainty.
“London businesses benefitted from solid sales growth and a tempering of price pressures in July,” said Catherine van Weenen, NatWest’s Regional Managing Director for Commercial Mid-Market, London & South East.
The improvement helped produce the fastest rate of output growth in three months and encouraged more companies to plan investment on expectations that sales revenues will continue to rise.
Price pressures nevertheless remained elevated. Input costs increased sharply, with businesses citing higher prices for IT components, fuel and transport alongside rising wages. But the rate of cost inflation slowed for a third consecutive month from its multi-year peak in April.
The easing filtered through to companies’ selling prices. Output charge inflation slowed to its weakest level since February, leaving London among the regions recording the softest increases in prices.
The moderation follows a surge in inflationary pressure linked to the conflict in the Middle East, suggesting some of the shock to business costs may be beginning to fade.
The labour market remained a weak spot. London companies continued to reduce headcounts in July, largely through natural attrition. However, the pace of job losses eased to its weakest level of 2026 and the least severe decline for seven months.
Some firms reported selective recruitment as part of longer-term investment strategies, offering a tentative indication that stronger demand could eventually feed through into employment.
Backlogs also stabilised during the month, ending a three-month run of declining outstanding work. This contrasted with a moderate reduction in unfinished business across the UK as a whole.
Business confidence improved in July, although expectations remained below levels recorded at the beginning of the year. Firms continued to cite geopolitical risks and high business costs as constraints, while strong demand forecasts and planned investment provided grounds for optimism.
London’s acceleration was particularly notable because growth strengthened across most monitored UK regions. The capital recorded the strongest expansion, reinforcing its position as one of the country’s principal engines of private-sector activity.
For now, the data point to an economy gaining momentum rather than breaking decisively clear of its cost pressures: demand is strengthening, confidence is recovering and inflation is easing, but companies remain cautious about hiring and the durability of the recovery.
Leave a Comment