British companies have slightly lowered their wage growth and price inflation expectations, according to the latest Bank of England (BoE) Decision Maker Panel survey, but inflation pressures remain strong enough to keep the central bank cautious on interest rate cuts in 2026.

The survey, released on January 8, 2026, shows firms expect wage growth of 3.7% over the next 12 months, a marginal decline of just 0.1 percentage points compared with the previous three months to November 2025. Expectations for price inflation also barely fell, edging down by 0.1 points to 3.6%, indicating businesses anticipate continued cost pressures in the year ahead.

Employment and Inflation Outlook

Alongside wage and price expectations, the BoE survey highlighted a slight weakening in employment growth forecasts over the next year. Firms appear to be cautiously adjusting hiring plans as economic conditions remain uncertain.

Rob Wood, chief UK economist at Pantheon Macroeconomics, noted:

“The survey suggests that companies are moving past months of speculation surrounding Finance Minister Rachel Reeves’ budget announced in late November. However, both wage growth and inflation remain too high for comfort for the Bank of England.”

This caution from firms reinforces the BoE’s approach to monetary policy. Wood added that the Monetary Policy Committee (MPC) is likely to remain careful with further rate cuts, with markets currently pricing in one or two quarter-point reductions for 2026.

Consumer Price Inflation

The survey also indicated that businesses expect consumer price inflation of 3.4% over the coming year, unchanged from November and well above the Bank of England’s 2% target. Meanwhile, the UK’s headline inflation rate fell slightly to 3.2% in November 2025, following a BoE interest rate cut in December to 3.75% from 4%.

Despite easing in headline inflation, the persistence of elevated wage and price growth suggests the central bank will remain cautious about aggressive interest rate cuts. Analysts say this is consistent with the BoE’s broader goal of ensuring inflation expectations remain anchored and preventing a resurgence in price pressures.

Implications for the UK Economy

The survey findings highlight several key trends in the UK economy:

• Wage growth remains strong but slightly moderated, reflecting firms’ caution in a post-budget environment.
• Price inflation expectations remain high, signaling ongoing pressure on households and businesses.
• Employment growth expectations show slight softening, indicating potential challenges in hiring amid cost pressures.
• Interest rate cuts are expected to be gradual, with the BoE balancing growth support against inflation control.

The data suggests that while companies are adjusting expectations in response to economic signals, inflationary pressures have not fully abated, and wage growth remains a central concern for policymakers.

Outlook for 2026

Financial markets are now factoring in modest interest rate reductions by the BoE in 2026, likely one or two quarter-point cuts. However, analysts warn that any unexpected rise in inflation could limit the central bank’s ability to ease policy further.

For businesses, households, and investors, the survey underscores the importance of planning for continued cost pressures, cautious wage settlements, and measured economic growth.