UK Firms Keep Year-Ahead Inflation Expectations at 3.1 Percent as 70 Percent See Thinner Margins
UK firms expect consumer price inflation of 3.1 percent a year ahead, unchanged in the three months to September after falling from 3.4 percent in the three months to July, according to the Bank of England’s Decision Maker Panel published on 2 October. The share of firms expecting the energy shock to cut their profit margins over the next 12 months rose to 70 percent, from 61 percent in August and 68 percent in April. The survey ran from 4 to 18 September and drew 1,993 responses from chief financial officers.
Margins are taking more of the shock
The share of firms planning to raise prices because of the energy shock fell to 57 percent, from 59 percent in August and 64 percent in April, while 7 percent expect to lower prices, up from 6 percent. On our calculation, the share expecting thinner margins jumped 9 points in a month while the share planning price rises slipped 2 points. On our reading, firms are absorbing a larger part of the shock themselves.
Decision Maker Panel, three-month averages, percent
| Measure | To August | To September | Change |
|---|---|---|---|
| Realised own-price growth | 3.7 | 3.7 | 0.0 |
| Expected own-price inflation, year ahead | 3.8 | 3.7 | -0.1 |
| CPI inflation expectation, year ahead | 3.1 | 3.1 | 0.0 |
| CPI inflation expectation, three years ahead | 2.8 | 2.8 | 0.0 |
| Realised wage growth | 4.0 | 4.0 | 0.0 |
| Expected wage growth, year ahead | 3.4 | 3.4 | 0.0 |
| Realised employment growth | -0.2 | -0.2 | 0.0 |
| Expected employment growth, year ahead | 0.1 | 0.2 | +0.1 |
August values are from the Bank’s August 2026 release.
Pay expected to slow
Firms reported annual wage growth of 4.0 percent and expect 3.4 percent over the next year, a slowdown of 0.6 points on our calculation. On our calculation, expected pay growth of 3.4 percent sits 0.3 points above firms’ 3.1 percent CPI expectation, which on our reading implies real pay still rising over the next year. It is also 0.3 points below firms’ own expected price inflation of 3.7 percent.
Why it matters: Year-ahead inflation expectations of 3.1 percent remain above the 2 percent target and have not moved since August. What has changed is where the energy shock lands: on our reading, less of it is heading into selling prices and more into margins.
Outlook: The next Decision Maker Panel release is due on 30 October. It will show whether the share of firms planning price rises keeps falling and whether the slowdown firms expect in pay starts to appear in realised wage growth, which is still at 4.0 percent.
Sources: Bank of England, The Edge.
