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There are always cheap places to stay in city's, its just a matter of digging for them! There are some great hostels in London...Hostels are renowned for their great prices, locations and are also great places to meet new people. But it all depends on what kind of trip you are going on.
Why not try looking here aswell: www.cheaphotelbookings.com - They compare the prices of 1 - 5 star hotels to find you the cheapest deal on the market.
Like Hellonwheels said, it is probably best to stay on the outskirts of the city and use public transport. Maybe get an Oyster card when you are there, You will need to pay £5 deposit for it but this is refundable when/if you return the card, well worth is as its the cheapest way to pay for single journeys on bus, tube, tram, DLR, London Overground and most National Rail services in London.
I hope this helps.
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