Well, 26" isn't a particularly helpful way to describe that front wheel!
26 x 1 1/4 = 597mm
26 x 1 3/8 = 590mm
26x 1.75 (etc) = 559mm
I guess it's unlikely to be the first, but there's a big difference between the other two.
If it's a 559 you've fitted, then that is indeed very odd - there's a lot less clearance on the front than the rear. The forks *look* original, though.
If it's 26 x 1 3/8, then looking at that clearance (both brake and frame) I'd say that 700C should fit (they'd need the brake blocks to be 16mm higher, and it looks as though you've just about got that). Most British frames of that period were built to take both sprints (same size as 700c) and 27", so it's still a bit odd that a 27 won't fit, but I can see that it would be on the limits, at least with those brakes.