In the ‘old days’, the intertubes used to work out where you were based on your IP address, which would roughly correspond to a local “point of presence” – ie, it might have me down as “Manchester” when I’m really about 20 miles north of that. Some ISPs did things differently, resulting in AOL connections appearing to be about 2000 miles East of here. (-:
These days, I’m not wholly sure where Google gets its location info from, but I suspect it’s multiple sources. They hold a database of router information collected when they did Google Street View, so can get a coarse location based on what you can see from a WiFi connection (this is why I asked about routers; it’s also why some people erroneously think that the non-3G iPad can get GPS data when tethered).
You are of course going to http://www.google.co.uk and not, uh, .co.es yes?
Who’s your ISP, out of interest?