Output price inflation
Annual own price growth has risen slightly among firms in the Decision Maker Panel (DMP) in the most recent data after declining over the past year. In the three months to August, annual output price growth was 3.7%, up from 3.5% in the three months to May (Chart 1). This refers to prices charged by businesses across the whole economy, rather than just those selling directly to consumers. In the three months to August, expected price growth was 3.7%, suggesting that firms are now expecting own price inflation to remain unchanged over the next 12 months.
Realised and expected services price inflation has remained higher than goods price inflation. In the three months to August, own price growth in the service sector was 4.0%, up from 3.9% in the three months to May. Over the year ahead, service providers now expect own price growth to decrease by 0.1 percentage points to 3.9% in the three months to August 2026. Own price growth in the goods sector rose to 3.2% in the three months to August increasing by 0.2 percentage points since the three months to May. Over the year ahead, goods producers expect a further small increase in own price growth of 0.1 percentage points to 3.3%.
Chart 1: Firms expect own price inflation to remain unchanged over the next 12 months
Realised and expected annual price inflation and change in inflation expected over the next year (a)
Footnotes
- (a) Realised price growth results are based on the question: ‘Looking back, from 12 months ago to now, what was the approximate % change in the average price you charge, considering all products and services?’. Expected price growth results are based on the question: ‘Looking ahead, from now to 12 months from now, what approximate % change in your average price would you expect in each of the following scenarios: lowest, low, middle, high and highest?’ and respondents were asked to assign a probability to each scenario. The purple bars correspond to the difference between the orange and aqua lines. The chart shows three-month average data.
CPI inflation perceptions and expectations
Short-term CPI inflation expectations have risen modestly since the beginning of the year as official CPI inflation has picked up. In the three months to August, firms expected CPI inflation to be 3.3% one year from now (Chart 2). Since August 2024, one year ahead CPI expectations have risen by 0.6 percentage points. Firms also expect CPI inflation to be 2.9% three years from now. Three year ahead CPI inflation expectations have increased by less than short-term expectations, rising by 0.3 percentage points since August 2024.
Firms in the DMP are also regularly asked about their current CPI inflation perceptions (orange line in Chart 2). These have remained close to actual CPI inflation in 2025 (aqua line in Chart 2). This suggests that firms have a relatively accurate read on aggregate inflation trends.
Chart 2: Short-term inflation expectations have risen modestly over 2025
Current CPI inflation perceptions, one-year and three-year CPI expectations (a)
Footnotes
- (a) The results on CPI inflation perceptions and expectations are based on the question: ‘As a percentage, what do you think is the current annual CPI inflation rate in the UK? And, what do you think the annual CPI inflation rate will be in the UK, both one year from now and three years from now?’. Annual CPI inflation data is taken from the Office for National Statistics (ONS). We calculate the average CPI inflation rate during each DMP survey window. The chart shows three-month average data.
Wage growth
Annual wage growth has continued to decline. In the three months to August, firms reported average wage growth per employee of 4.6% (Chart 3). In the three months to July official statistics reported by the ONS showed that the annual growth in weekly regular pay (excluding bonuses and pay arrears) was 4.8% across the whole economy and 4.7% in the private sector. Wage growth in the DMP has now fallen by over 2 percentage points since its peak in 2023. In the three months to August, year-ahead wage growth expectations among firms in the DMP remained flat at 3.6%. Firms therefore expect wage growth to continue to fall over the next year, by around 1 percentage point.
Looking across industries, wage growth remained highest among providers of consumer-facing services (eg, accommodation and food, health, and recreational services). In the three months to August, wage growth in consumer-facing services was 5.6%, a fall of 0.2 percentage points from the three months to May. Year-ahead expected wage growth for firms in this sector remained constant at 4.3% in the three months to February. These firms therefore now expect a fall in wage growth over the next year of 1.3 percentage points.
In the three months to August, firms in the goods sector reported annual wage growth of 4.3%, 0.1 percentage point lower than in the three months to May. Over the next year, firms expect a further 1.0 percentage point decrease in wage growth to 3.3%. Wage growth in the business-facing services sector (eg, finance and insurance) has also declined by 0.1 percentage point from 4.4% in the three months to May, to 4.3% in the three months to August. Over the next 12 months, these firms expect a further fall in wage growth of 0.9 percentage points to 3.4%.
Chart 3: Firms continue to expect a fall in wage growth over the year ahead
Annual and expected year-ahead wage growth (a)
Footnotes
- (a) The results on wage growth are based on the questions: ‘Looking back, from 12 months ago to now, what was the approximate % change in your average wage per employee?’; and ‘Looking ahead, from now to 12 months from now, what approximate % change in your average wage per employee would you assign to each of the following scenarios: lowest, low, middle, high, highest?’. For the questions on year-ahead expectations, respondents were then asked to assign a probability to each scenario. A point estimate is constructed by combining the five scenarios with the probabilities attached to them. The purple bars correspond to the difference between the orange and aqua lines. The chart shows three-month average data.
Employment
Annual employment growth among firms in the DMP has continued to decline, and has turned negative in the most recent data. On a three-month average basis, firms reported a fall in realised employment growth from 0.6% to -0.5% between May and August (Chart 4). Annual employment growth is now the lowest it has been since the Covid pandemic.
Year-ahead firm employment growth expectations have declined from 0.3% to 0.2% between the three months to May and the three months to August. Firms therefore expect relatively little increase in employment over the next 12 months.
Chart 4: Firms expect employment growth to remain weak
Realised and expected annual employment growth and change in employment growth over the next year (a)
Footnotes
- (a) The results on employment growth are based on the questions: ‘How many people does your business currently employ (including part time), and how many people did you employ 12 months ago?’; and ‘Looking ahead, 12 months from now, how many employees would your business have in each of the following scenarios: lowest, low, middle, high, highest?’. For the questions on year-ahead expectations, respondents were then asked to assign a probability to each scenario. A point estimate is constructed by combining the five scenarios with the probabilities attached to them. The purple bars correspond to the difference between the orange and aqua lines. The chart shows three-month average data.
Margins of adjustment to NICs and NLW changes
In August, firms in the DMP were asked about how they have responded to the changes in employer National Insurance contributions (NICs) that were implemented in April 2025. Firms could select multiple margins of adjustment. This is a follow-up to a similar past question about how firms expected to respond to these changes. That question was previously asked between November 2024 and January 2025, soon after the changes were announced in the Autumn 2024 Budget. The most common margin of adjustment to NICs was lowering profit margins, reported by 66% of firms in August (Chart 5), as was expected to be the case when the changes were first announced. As well as accepting lower profit margins, at least in the short term, firms also report having responded to the increases in NICs in a number of other ways with 34% reporting raising prices, 46% lowering employment, and 20% paying lower wages than they otherwise would have done.
Firms were also asked the margins of adjustment in response to the compulsory increases in National Living Wage (NLW) which came into effect in April 2025. Firms were again allowed to select more than one option. In contrast to firms’ responses to NICs, the most common margin of adjustment in response to the NLW was higher wages, which was reported by 52% of firms (Chart 5). 46% reported that profit margins were lower, 31% reported raising prices, and 29% said they had lowered employment.
Taking the responses to the questions on NICs and NLW together, both are reported to have led some firms to employ fewer people than they would have done, and this may have at least partially contributed to the recent slowing in overall employment growth. Some firms raising prices in response to these changes may also have contributed to the continued strength of aggregate inflation. On wages, the two effects are acting in opposing directions, with NLW leading to higher wage growth and NICs putting downward pressure on wages. There may also be interactions between the two as firms more exposed to the NLW were less likely to report they had paid lower wages than would have otherwise been the case in response to increases in NICs. Also note that these questions on how firms have responded to the changes in NICs and NLW have only been asked to one third of the panel so far, and therefore the results are provisional and will be subject to revision. The remaining two thirds of firms will be asked these questions in September and October.
Chart 5: Firms expect lower profit margins as the main adjustment to NICs, and higher wages in response to NLW changes
Firms’ margins of adjustment to NICs and NLW changes (a)
Footnotes
- (a) The results on NICs and NLW margins of adjustment are based on the questions: ‘How has your business responded to the changes to employer National Insurance contributions that were implemented in April 2025?’; and ‘How has your business responded to the increases in the compulsory National Living Wage/National Minimum Wage that were implemented in April 2025?’. For these questions, respondents were asked to select all that applied from the following options: (i) Lower wages (via NICs)/Higher wages (via NLW); (ii) Lower number of employees; (iii) Higher prices; (iv) Lower profit margins; (v) Other; (vi) None of the above. Firms were asked to answer relative to what they expect would otherwise have happened.
Methodology
The DMP consists of the Chief Financial Officers of small, medium, and large UK businesses operating in a broad range of industries.
We survey panel members to monitor developments in the UK economy and to track businesses’ views on them. This work complements the intelligence gathered by our Agents.
This note is a summary of surveys conducted with DMP members up to August 2025. The August survey was in the field between 8 and 22 August. The August survey received 2,126 responses.
Further monthly data from the August survey for a limited number of DMP series was published on 4 September 2025. Aggregate level data for all survey questions are published on a quarterly basis. Data from the May to July surveys were released on 7 August. More information can also be found on the DMP website.
The panel was set up in August 2016. It is run by the Bank of England in collaboration with King’s College London and the University of Nottingham. It was designed to be representative of the population of UK businesses. All results are weighted using employment data. Read Bunn et al (2024) for more details.
The DMP receives funding from the Economic and Social Research Council.