Overview
UK inflation eased to 2.6% in June, still above the Bank of England’s target, and interest rates have now been held at 3.75% for a fifth straight time. Growth is picking up faster than expected, with the UK tipped to outpace most major economies through 2027. Meanwhile, a structural housing shortfall persists, London landlords are exiting under new rent rules, and global pension funds are pouring capital into UK homes. Here’s how the pieces fit together.
Bank of England holds firm as inflation pressures ease
UK inflation came in at 2.6% for the year to June 2026, down from the previous month but still above the Bank of England’s 2% target. The Bank held its base rate at 3.75% at its latest meeting — the fifth meeting in a row without a change — and a rate move next month looks unlikely, with rate-setters wanting to see what the new Prime Minister’s policies do first.
The rise in rates traces back to a series of economic shocks. Post-pandemic demand rose while supply chains remained disrupted. Russia invaded Ukraine in March 2022 and European gas prices spiked, tripling the UK’s energy price cap. Then-Prime Minister Liz Truss announced unfunded tax cuts in September 2022, largely funded by borrowing. By May 2023, headline inflation was falling from its 2022 peak, but service inflation and wage growth stayed stubbornly high, keeping the Bank of England hiking well into mid-2023.
The UK economy is growing faster than it has in years
The UK economy grew 0.7% in the three months to May 2026, with an upwardly revised figure putting growth in the three months to April at 0.8% — the fastest expansion in two years. The IMF now expects UK GDP to grow 1.0% in 2026 and 1.3% in 2027, which would put the UK ahead of Japan, Germany, France and Italy over the same period; only the US and Canada are projected to grow faster among major advanced economies. The growth comes against a backdrop of political change.
Capital is flowing into UK property and innovation
UK pension funds are increasing investment in British companies and housing. A group of UK pension funds has pooled together to unlock £1 billion for high-growth British science and technology companies. Separately, some of the world’s largest pension funds are stepping up their commitment to UK housing, reportedly encouraged by a supportive policy environment and continued housing demand.
More London landlords are selling
New rent rules are prompting some London landlords to sell up. An estimated 30% of homes put up for sale in London in the year to March were formerly buy-to-let properties — close to 700 listings a day across the UK — and the trend appears to have continued since. Supply is shrinking as existing landlords exit, while rental demand keeps rising: UK rents grew 3.3% in the latest reading, with increases recorded across every UK nation. Together, these trends point to tighter rental supply alongside continued demand.
