United Kingdom Monthly Outlook - September 2026
The UK economy continued to expand at a steady pace, with headline growth, inflation and employment data all coming in stronger than markets had expected, even as a series of external and domestic pressures added fresh uncertainty to the outlook. Rising energy costs linked to the ongoing conflict in the Middle East, sharpening criticism from senior business figures over UK tax policy, and a significant shift in the constitutional debate across the devolved nations have all shaped the backdrop against which the latest economic data should be read.
On the positive side of the ledger, KPMG’s latest economic outlook forecasts UK growth of 1.3% for 2026 and 1.4% for 2027, with household spending buoyed by warmer weather earlier in the year and businesses continuing to invest in technology, particularly artificial intelligence. That AI-led investment theme has become a recurring feature of the UK growth story this year, cutting across the GDP, services and labour market data covered in the sections that follow. However, it was cautioned that household spending power is likely to face increasing pressure as energy bills rise over the autumn and wage growth slows. The longer-term challenge will be sustaining stronger economic growth as the contribution of an expanding labour force diminishes. The firm’s analysis also points to substantial untapped potential in regional investment, estimating that around £47 billion of additional capital spending in England’s most underfunded regions could close much of the national productivity gap and generate £25 billion in additional GDP over five years, a theme echoed in wider calls, including in the Guardian, for the government to strengthen the financial firepower of the National Wealth Fund so it can play a larger role in crowding in private investment for infrastructure and industrial strategy.
Business sentiment, however, has turned notably sharper in its criticism of government policy. Billionaire Ineos owner Sir Jim Ratcliffe and Betfred founder Fred Done both issued pointed warnings about the direction of UK tax policy and its effect on entrepreneurship and investment, arguing that the tax and regulatory environment is driving high earners and capital away from Britain ahead of the Chancellor’s Autumn Budget on 28 October. Ratcliffe also renewed his call for the government to invest in North Sea oil and gas production, warning of insanity in failing to do so as storage levels raise the prospect of a difficult winter for gas supply. These interventions were quickly rebutted by government ministers, but they underscore the fiscal tightrope Chancellor John Healey is walking: elevated borrowing costs stemming from the Iran conflict have already eroded a significant share of the headroom inherited from the Spring Forecast, leaving comparatively little room to manoeuvre between supporting growth and addressing the cost of living.
Domestically, the political landscape also shifted, with the nationalist first ministers of Scotland, Wales and Northern Ireland signing a joint declaration asserting that “Westminster’s time is coming to an end” and pressing for greater constitutional and fiscal autonomy. While the practical near-term economic implications remain limited, the declaration adds a further layer of uncertainty to the UK’s institutional backdrop at a time when investors and businesses are already contending with global volatility, and it is likely to keep questions over the Barnett funding formula and regional fiscal arrangements firmly on the agenda in the months ahead.
On trade, the picture was more constructive internationally but more contested closer to home. The UK and ASEAN marked the fifth anniversary of their Dialogue Partnership with a new joint declaration on economic cooperation, reaffirming commitments to open markets, financial services cooperation, digital trade and clean energy collaboration across a relationship now worth more than £62 billion annually. Closer to the UK’s largest trading partner, however, new analysis from the SMMT warned that the EU’s draft “Made in Europe” industrial provisions could exclude UK-built vehicles from key incentives, putting at risk an estimated €24 billion of EU economic activity and 250,000 EU jobs that are underpinned by UK automotive production, a reminder that, even years after Brexit, UK-EU trade friction remains a live risk to one of Britain’s most significant manufacturing sectors.
The sections that follow set out the detailed data behind this narrative: economic growth, inflation, interest rates, the labour market, international trade and the housing market.
i. Economic Growth
Monthly GDP data for July 2026 illustrate the extent to which the UK economy has continued to defy expectations of a slowdown, even as households and businesses absorb the fallout from higher energy prices linked to the war in Iran. Official figures released by the Office for National Statistics (ONS) on 11 September 2026 showed real gross domestic product (GDP) grew by 0.4% in July, comfortably ahead of the forecasts and up from 0.3% growth in June. The upside surprise was attributed largely to a strong services performance and to growing business use of artificial intelligence (AI), which the ONS said was now visibly lifting turnover in IT-related industries.
On a three-month basis, the measure the ONS regards as more representative of underlying conditions, real GDP grew by 0.4% in the three months to July compared with the three months to April, matching the pace recorded in the three months to June and following growth of 0.6% in the three months to May. This marked the eighth consecutive period of three-month-on-three-month expansion. On an annual basis, GDP was up 1.3% in the three months to July compared with the same period a year earlier, while July output alone stood 1.6% higher than in July 2025. The services sector remained the principal engine of growth, expanding by 0.6% over the three-month period, while both production and construction output fell by 0.5% each, reversing the modest gains recorded a month earlier.
Contributions to Three-Month GDP Growth by Sector
Taken together, the July data point to an economy that has continued to demonstrate resilience in the face of geopolitical shocks and a still-fragile domestic political backdrop, though the strength of the headline figure conceals a more uneven picture beneath the surface, one in which AI-driven services growth is doing much of the heavy lifting while consumer-facing activity, production and construction all lose momentum.
Services
Services output grew 0.4% on the month, with 8 of 14 subsectors expanding. The largest positive contribution came from administrative and support service activities (up 3.7%), followed by information and communication, up 2.4% and driven chiefly by a 3.5% rise in computer programming, consultancy and related activities. The ONS noted that many of the highest-turnover businesses in this area were engaged in AI, and cloud-computing-related work, though it cautioned that the precise scale of the AI contribution remains difficult to isolate given current data-collection methods. According to ONS, there was evidence that AI-related businesses had helped boost the sector not only in July but across May and June as well.
Offsetting these gains, wholesale and retail trade (repair of motor vehicles and motorcycles) was the largest negative contributor, down 1.0% on the month. Consumer-facing services fell 0.4%, as retail and hospitality activity pulled back following the earlier summer boost from the heatwave and the FIFA World Cup.
Production
The production sector is estimated to have declined by 0.5% in the three months to July 2026, compared with the three months to April 2026. This follows no change in the three months to June 2026 and an increase of 0.2% in the three months to May 2026.
In the three months to July 2026, the production sector decreased by 0.5%, with negative contributions from water supply; sewerage, waste management and remediation activities, which fell by 4.0%, electricity, gas, steam and air conditioning supply, which declined by 1.5%, and mining and quarrying, which decreased by 2.6%. This was partially offset by a 0.5% increase in manufacturing.
On a monthly basis, production output is estimated to have increased by 0.2% in July 2026, following declines of 0.2% in June and 0.7% in May 2026. The increase was driven by growth in manufacturing, which rose by 0.9%, and water supply; sewerage, waste management and remediation activities, which increased by 2.0%. This was partially offset by declines in mining and quarrying, down 4.4%, and electricity, gas, steam and air conditioning supply, down 1.5%.
Construction
Construction output is estimated to have declined by 0.5% in the three months to July 2026, compared with the three months to April 2026. Both new work and repair and maintenance decreased over this period, falling by 0.4% and 0.7%, respectively. Within new work, the largest negative contribution came from public housing new work, which declined by 8.4%. For repair and maintenance, the largest negative contribution came from private housing repair and maintenance, which fell by 1.7%.
Monthly construction output is estimated to have increased by 0.1% in July 2026. This follows a decline of 0.1% in June 2026 and a decrease of 0.8% in May 2026.
The monthly increase in output in July 2026 was driven entirely by growth in repair and maintenance, which increased by 0.8%. In contrast, new work decreased by 0.4%. At the sector level, the main contribution to the monthly growth in repair and maintenance came from private housing repair and maintenance, which increased by 1.7%.
Political and Market Reaction
Chancellor John Healey welcomed the figures as evidence of “welcome resilience, despite serious global uncertainty,” noting that UK growth had been the fastest in the G7 over the first half of 2026, while acknowledging that the conflict in the Middle East continued to be felt at home, from household shopping bills to the cost of government borrowing. Shadow Chancellor Andrew Griffith pushed back, arguing that the construction and production sectors were contracting, unemployment had risen and government borrowing costs stood at their highest level in almost three decades.
Economists were similarly divided between near-term optimism and longer-term caution. Capital Economics’ Paul Dales said the data showed the resilience seen in the first half of the year carrying into the second, though he warned that higher energy prices and borrowing costs would soon begin to weigh on growth. KPMG’s Yael Selfin cautioned that the headline figure “masks a weaker picture for households,” pointing to the contraction in consumer-facing services and the pressure that elevated mortgage rates and energy costs are placing on household spending.
AI and the Energy Price Backdrop
The July release landed against a backdrop of renewed volatility in global energy markets, with oil prices pushing back above $100 a barrel following the escalation of the Iran conflict. This has led markets to raise their expectations for UK interest rates, with some now pricing in as many as four quarter-point increases over the coming year, even though the Bank of England’s Monetary Policy Committee was still expected to hold Bank Rate at 3.75% at its September meeting. Economists argue that the growth data could strengthen the hawkish mood among rate-setters, though most policymakers were still expected to judge a September rate rise unlikely. Higher borrowing costs are also thought to have eroded a significant share of the fiscal headroom inherited by Healey, adding to speculation over tax rises or spending cuts at the autumn Budget.
On the AI theme specifically, Rob Arnold, co-founder of the nine-person AI firm Ascendea, argued the UK has yet to see the technology’s full growth potential. He said AI allows his company to build client applications far faster and more cheaply than before, but that UK government support lags behind the US, prompting some smaller domestic AI firms to relocate or consider doing so, and called for greater investment in training businesses to use the technology safely.
Real-time indicators for August 2026 point to a softer near-term picture: retail footfall eased and housing market activity weakened further, though the labour market showed continued signs of easing pressure, with potential redundancies falling for a third consecutive month after May’s peak. No period in this release is open to revision; the full monthly GDP time series will next be revised on 15 October 2026, incorporating Blue Book 2026 methodological changes alongside the Quarterly National Accounts release due 30 September 2026.
ii. Inflation Rate
Consumer price inflation data for August 2026 confirm that the disinflation seen earlier in the year has given way to renewed upward pressure, as the UK economy continues to absorb the impact of higher global energy prices tied to the conflict in the Middle East. According to figures released by the ONS on 16 September 2026, the Consumer Prices Index (CPI) rose by 3.1% in the 12 months to August, up from 2.9% in July and matching market expectations. This was the highest annual rate in five months and marked the second consecutive monthly increase, following a low point of 2.6% in June. The broader CPIH measure, which includes owner occupiers’ housing costs, rose by 3.3% over the same period, up from 3.1% in July.
Inflation Rate (August 2016 – August 2026)
On a monthly basis, CPI rose by 0.5% in August, its fastest monthly pace in four months, compared with a rise of just 0.3% in the same month a year earlier. Sharp increases in petrol and diesel prices pushed inflation higher again in August, while rising airfares, particularly for long-haul flights, also contributed to the increase. Encouragingly for policymakers, core CPI (excluding energy, food, alcohol and tobacco) held steady at 2.6% for a fourth consecutive month, while services inflation, closely watched by the Bank of England as a gauge of underlying and wage-driven price pressure, was also unchanged, at 3.4%.
The rise in the 12-month rate reflected upward contributions from six of the twelve expenditure divisions, with no significant offsetting declines. By far the largest contribution came from transport.
Transport and Fuel Prices
Transport prices rose by 4.6% in the 12 months to August, up sharply from 3.6% in July, and the single largest driver of the headline increase. The average price of petrol rose by 9.1 pence per litre over the month to 161.3 pence, its highest level since November 2022, while diesel rose by 14.2 pence per litre to 181.8 pence. Together, these moves pushed the annual rate of motor fuel inflation to 23.0%, from 15.5% in July. Air fares also rose 6.2% over the month, led by long-haul routes, as prices collected since the outbreak of the Middle East conflict in February 2026 continued to reflect the disruption to oil markets and flight routings caused by the war.
Housing, Energy and Other Divisions
Housing and household services inflation rose to 4.3% (CPIH basis), up from 4.1% in July, driven mainly by a pickup in owner occupiers’ housing costs, up to 3.9% from 3.7%. Electricity, gas and other fuels also added modest upward pressure, with prices up 0.9% on the month and the annual rate for this category reaching 6.0%, reflecting increases in domestic heating oil and fixed-rate gas and electricity tariffs. Communication prices rose 5.3% annually, up from 5.0%, while recreation and culture inflation ticked up to 1.6% from 1.4%. Food and non-alcoholic beverage inflation held steady at 1.3%, a rate last seen as low in September 2021, as a further easing in confectionery prices offset a small upward effect from vegetables.
Goods versus Services
The CPIH all-goods index rose 2.7% in the 12 months to August, up from 2.2% in July and its highest rate since September 2025, driven by the jump in energy and fuel costs. By contrast, CPIH services inflation was unchanged at 3.6% (3.4% on the CPI measure), as upward pressure from housing services and catering was offset by softer travel, transport and package-holiday prices. The UK’s 3.1% CPI rate remained above the flash estimates for France (2.7%) and Germany (2.9%) for the same month.
Policy and Market Reaction
The release landed one day before the Bank of England’s Monetary Policy Committee decision on 17 September, at which the Bank was widely expected to hold Bank Rate at 3.75%. The National Institute of Economic and Social Research (NIESR) said that, given the limited evidence of second-round effects so far, the Committee was likely to keep interest rates unchanged. However, it cautioned that mounting inflationary pressures, alongside resilient growth, could eventually create scope for rate increases without materially damaging the economy. Money markets nonetheless priced in a modest probability of a hike at the September meeting, with a greater likelihood attached to further tightening before year-end as gas and oil prices continued to climb. Goldman Sachs projected that headline inflation could peak at 3.9% in early 2027 before beginning to ease.
Chancellor John Healey linked the rise directly to the war in the Middle East, telling reporters that events in the region were “hitting inflation, it’s hitting growth, it’s hitting borrowing costs,” and reiterating that the government’s VAT cut on electricity bills and its cap on bus fares were intended to give households breathing space while the shock persisted. He has also warned that his first autumn Budget, due on 28 October, would need to build in a buffer against uncertainty given the scale of the pressures on the public finances. Sterling weakened modestly following the release, while gilt yields remained close to recent multi-decade highs, reflecting investor concern that persistent energy-driven inflation could narrow the Bank’s room to manoeuvre ahead of the Budget.
Looking ahead, further increases in domestic energy bills, which track global wholesale prices with a lag, are expected to keep headline inflation elevated into the autumn, particularly following Ofgem’s latest price cap adjustment. The next consumer price inflation release, covering September 2026, is due on 21 October 2026.
iii. Interest Rate
The Bank of England left Bank Rate unchanged at 3.75% at its Monetary Policy Committee (MPC) meeting on 17 September 2026, the sixth consecutive hold, but signalled that a rise in borrowing costs was becoming more likely if elevated energy prices persist. The decision, taken by a 6–3 vote, came a day after UK inflation data showed CPI rising to 3.1% in August, against a backdrop of intensifying disruption to global energy markets from the US-Israel conflict with Iran. The Committee’s three dissenting members, including chief economist Huw Pill, voted for an immediate rise to 4%, reflecting a growing minority view that the inflationary consequences of the energy shock warranted pre-emptive tightening, while the majority judged that with limited evidence so far of the shock feeding through into wages and underlying prices, holding steady remained appropriate.
Interest Rates
Alongside the decision, the Bank materially upgraded its near-term inflation projections, now expecting CPI to rise to slightly above 4% at the start of 2027, and warning that the household energy price cap, next reset in January, was now expected to rise substantially further because of the conflict. Governor Andrew Bailey said the direct impact of higher energy costs on inflation was already clear, but that officials were still assessing how far those costs would pass through more broadly across the economy. He was explicit about the conditions required for rates to fall: an end to the conflict in the Middle East, and energy prices returning really back to where they were beforehand, describing the current global backdrop as “hugely unpredictable.” Markets responded by pricing in as much as 50 basis points of further tightening over the following twelve months, with a November move seen as the most likely next step should energy prices stay elevated, a stance that mirrors moves by other major central banks the same week, with the US Federal Reserve hiking on 16 September and the European Central Bank having raised rates twice since June.
The MPC’s broader economic assessment struck a more optimistic note than its inflation guidance. The Bank said the UK economy had proved more resilient than previously expected, and raised its third-quarter 2026 growth forecast to 0.4% from 0.1% in July, consistent with the stronger-than-expected GDP and inflation data published earlier in September. It also trimmed its year-end food price inflation forecast to around 4%, down from 6–7% previously, judging the pass-through from energy costs into the shopping basket had so far been contained by softer consumer demand and continued labour market slack.
The Bank also announced a significant recalibration of its quantitative tightening programme, pausing its scheduled annual gilt sales and moving instead to reduce its remaining £488bn bond stockpile, built up through £895bn of purchases during the financial crisis and the pandemic, at a slower average pace of roughly £46bn a year through to 2034. It stressed that planning for the change had begun roughly a year earlier and was not a direct response to the recent rise in long-term borrowing costs. Markets nonetheless reacted immediately: 30-year gilt yields fell from 5.86% to 5.75%, and 10-year yields eased from 5.31% to 5.22%, offering some relief to the Treasury ahead of the 28 October Budget.
The prospect of higher-for-longer rates has already fed through to household borrowing. A run of lenders raised the cost of new fixed-rate mortgage deals in the run-up to the decision: the average two-year fix reached 5.77%, its highest since 11 May, while the average five-year fix rose to 5.83%, its highest since November 2023. Borrowers coming off historically low fixed-rate deals face a particularly sharp adjustment; one homeowner coming off a five-year fix of 1.19% told the BBC he now expects to pay around £300 more a month, describing a clear “knock-on effect” for household saving.
Taken together, the September decision leaves UK monetary policy in a holding pattern shaped almost entirely by the trajectory of the Iran conflict and global energy prices. With the Bank’s own forecasts pointing to inflation nearing 4% by early 2027 and a three-member minority already pushing for tighter policy, a rate rise remains firmly on the table at the next meeting, due on 5 November 2026, should energy price pressures fail to ease.
iv. Wages & Labor Market
The UK labour market data point to an economy holding broadly steady on headline measures, even as earnings growth cools and underlying indicators send mixed signals about the strength of demand for workers. The employment rate stood at 75.1% in the three months to July 2026, down 0.1 percentage points on the year but essentially flat on the quarter, while the unemployment rate was 4.9%, up 0.2 percentage points on the year but also unchanged on the quarter. Economic inactivity edged down to 20.9%, both on the year and the quarter, driven mainly by fewer people looking after family or home. Redundancies rose to 3.9 per 1,000 employees, up on both comparisons, though total weekly hours worked continued to increase, suggesting existing employees are working more even as headcount growth stalls.
Unemployment Rates
Earnings growth remained resilient but continued its gradual deceleration. Average weekly earnings rose 3.5% year-on-year for regular pay (excluding bonuses) and 3.9% for total pay in the three months to July, down from 4.2% the previous quarter. In real terms, adjusted using CPIH, regular pay grew 0.6% and total pay 0.9%, both positive, but total pay real growth has slowed from 1.2% the previous quarter. Public sector pay growth continued to outpace the private sector by a wide margin, at 6.3% versus 2.9% for regular earnings, a gap partly explained by the earlier timing of NHS pay awards this year relative to last. Outside the public sector, wholesaling, retailing, hotels and restaurants posted the strongest regular pay growth at 3.1%, while construction lagged at just 0.3%. Average weekly earnings were estimated at £756 for total earnings and £705 for regular earnings in July 2026.
Average Weekly Earnings (Seasonally Adjusted)
More recent HMRC PAYE data showed a weaker picture of employment. Early estimates put payrolled employment at 30.2 million in August, down 0.5% (145,000) on the year and down 26,000 on the month, though August figures are provisional and typically revised upward as more data are received. Median monthly pay rose 3.5% year-on-year to £2,657, with the strongest growth in construction (5.5%) and the weakest in education, where pay fell 0.4% on a base effect from the timing of settlements. Administrative and support services added the most payrolled jobs over the year (+72,000), while wholesale and retail shed the most (-76,000).
Labour demand indicators continued to soften modestly. Vacancies fell to 702,000 in the three months to August, down 1.1% on the quarter and 4.9% on the year, their lowest level since early 2021 and nearly 11% below pre-pandemic levels. The unemployment-to-vacancy ratio held at 2.5 unemployed people per vacancy, up from 2.3 a year earlier, pointing to a gradually loosening labour market. Total workforce jobs nonetheless edged up 0.2% on the year to 36.7 million in June, with professional, scientific and technical activities and public administration and defence adding the most jobs, while human health and social work and construction saw the largest quarterly declines.
Public sector employment rose to 6.21 million in June 2026, up 0.5% on the year, with central government employment at a record high of 4.08 million, boosted by continued academy conversions and Civil Service growth. NHS employment was broadly flat at 2.07 million, while local government employment edged down slightly on the year to 1.97 million.
Taken together, the picture is one of a labour market cooling only gradually: employment and unemployment rates little changed, wage growth still comfortably outpacing inflation in real terms, but softer vacancies, falling payrolled employment and rising redundancies pointing to reduced hiring appetite as businesses absorb higher energy costs and borrowing costs tied to the ongoing Middle East conflict.
v. International Trade
UK goods and services trade continued to rebalance modestly in July 2026, with both exports and imports rising on the month and the overall deficit narrowing on a three-month basis. Goods imports rose by £1.3 billion (2.4%) to £55.3 billion, driven by a £1.7 billion (6.7%) jump in imports from non-EU countries that more than offset a £0.4 billion (1.4%) fall in imports from the EU. Goods exports rose by £0.9 billion (2.8%) to £33.9 billion, with gains split between the EU (+£0.8 billion, 5.2%) and non-EU markets (+£0.1 billion, 0.6%). The UK ran a goods deficit of £21.4 billion in July alone, with the EU accounting for the larger share of that gap (£11.3 billion) compared with non-EU trade (£10.2 billion).
UK Imports & Exports
On a three-month basis, the total goods and services trade deficit, excluding precious metals, narrowed by £1.1 billion to £9.0 billion in the three months to July compared with the three months to April, as export growth (+£6.1 billion, 2.6%) outpaced import growth (+£5.0 billion, 2.0%). Within this, the trade in goods deficit narrowed by £0.4 billion to £61.6 billion, while the trade in services surplus widened by £0.7 billion to £52.6 billion, continuing to offset the bulk of the goods shortfall. Adjusted for inflation, the total trade deficit narrowed by a larger £1.4 billion, to £17.4 billion.
The composition of trade in July pointed to a marked pickup in transatlantic and Asian flows on the import side, and continued EU-led strength on exports. On imports, the rise from non-EU countries was concentrated in machinery and transport equipment, reflecting higher aircraft imports from the United States and a record monthly level of car imports from China, alongside higher iron and steel imports from Turkey; these gains were only partly offset by lower crude oil imports from the United States. Imports from the EU fell modestly, largely on reduced aircraft imports from Germany and the Netherlands and fewer cars from Belgium and France. On exports, EU-bound shipments rose broadly across machinery and transport equipment, material manufactures and chemicals, the latter driven by stronger medicinal and pharmaceutical exports to Germany, while the increase in non-EU exports was concentrated in higher car exports to China, partly offset by weaker metal manufactures exports to Guyana and North Macedonia.
Trade in services also grew in July, with exports up an estimated £0.3 billion (0.5%) and imports up £0.2 billion (0.7%) on the month, broadly in line with the picture in inflation-adjusted terms. The S&P Global UK Services PMI for July pointed to improving market conditions and increased new work, though business uncertainty linked to the Middle East conflict was flagged as an ongoing challenge, with stronger export growth reported in European markets than elsewhere.
Taken together, the data show a UK trade position that continues to improve gradually on a three-month view, supported by resilient services exports and a rebound in goods exports to the EU, even as the overall goods deficit remains large and non-EU import demand, particularly for machinery, transport equipment and vehicles, continues to expand.
vi. Housing Market
UK house prices edged lower for a second consecutive month in August 2026, with the Lloyds House Price Index recording its first annual decline since November 2023. The average property price fell 0.2% on the month to £298,468, down from £299,153 in July, when prices had already dipped 0.1%. On an annual basis, prices were down 0.4% year-on-year, marking a clear turning point after more than two years of positive annual growth.
Lloyds House Price Index: Annual, Quarterly and Monthly Change
Andrew Asaam, Mortgages Director at Lloyds, said the market had faced a “more difficult backdrop in recent months,” with the impact of global events on inflation and borrowing costs creating greater economic uncertainty. He noted that the softness was not being driven by a wave of forced price-cutting: sellers were largely choosing to sit tight rather than accept offers they considered too low, while some buyers were holding back to see how conditions developed. As a result, fewer homes were changing hands, with mortgage approvals falling to their lowest level since the start of 2024.
Asaam stressed the importance of keeping the recent softening in context, noting that average house prices remained around 25% higher than at the end of 2019, despite the substantial rise in interest rates over recent years. The market’s adjustment to higher borrowing costs had been gradual, he said, with wage growth helping to offset some of the pressure on affordability. Looking ahead, Lloyds expects the market to stay fairly subdued in the coming months, though with only a limited further impact on prices, as continued wage growth and a labour market that has held up better than many anticipated should help support demand from those who need or want to move.
The national picture continued to mask a sharp regional divide. Northern Ireland remained the strongest-performing market for a sixth consecutive period, with prices up 6.9% year-on-year, a slower pace than recently, but enough to take the average property value to an all-time high of £231,245. Scotland also continued to outperform, with prices up 3.5% annually to £223,437, while Wales recorded more modest annual growth of 0.6%, taking the typical property value to £230,282. Within England, growth remained strongest in the northern regions: the North East posted annual growth of 2.7% (average price £184,370), while the North West saw prices rise 2.0% to £248,675.
By contrast, price growth remained under pressure across much of southern England, reflecting the greater affordability constraints associated with higher average prices in the region. The South East recorded the sharpest decline of any region, down 1.6% year-on-year to £381,729, followed by Greater London, down 1.5% to £534,177. The South West and Eastern England both posted annual declines of 1.2%, with average prices of £298,807 and £331,410 respectively.
Underlying activity data reinforced the picture of a subdued but not collapsing market. UK residential transactions fell 1.7% to 96,710 in July 2026 on a seasonally adjusted basis, according to HMRC, down 4.0% on a three-month basis and 1.1% below July 2025 levels. Bank of England data showed mortgage approvals for house purchases falling to 56,053 in July, down 3.7% month-on-month and 14.9% lower than a year earlier. The Royal Institution of Chartered Surveyors’ UK Residential Market Survey for July painted a similarly soft picture, with new buyer enquiries and newly agreed sales both unchanged at net balances of -28% and -30% respectively, while new instructions to sell improved sharply to -4% from -23% in June, suggesting more sellers are testing the market even as buyer demand stays weak.
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SMMT. ‘Made in Europe’ proposals threaten UK Auto’s €24bn contribution to EU economy. https://www.smmt.co.uk/made-in-europe-proposals-threaten-uk-autos-e24bn-contribution-to-eu-economy/
The Guardian (11 September 2026). UK economy unexpectedly grows 0.4% in July boosted by AI. https://www.theguardian.com/business/2026/sep/11/uk-economy-defies-forecasts-with-surprise-04-growth-in-july
The Guardian. UK urged to strengthen financial muscle of National Wealth Fund to aid economy. https://www.theguardian.com/business/2026/sep/21/uk-urged-to-strengthen-financial-muscle-of-national-wealth-fund-to-aid-economy
The Independent (16 September 2026). UK inflation rises to 3.1% as fuel and airfare costs climb.https://www.independent.co.uk/news/uk/home-news/uk-inflation-august-ons-b3050941.html
Wise, A., Press Association (11 September 2026). UK economy unexpectedly grew by 0.4% in July. Yahoo Finance UK. https://uk.finance.yahoo.com/news/uk-economy-unexpectedly-grew-0-062039814.html
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