The Bank of England’s regional agents have reported that UK businesses do not anticipate significant pay raises for employees, despite recent inflation increases. This suggests that a weak labor market is helping to keep price pressures in check.
According to the agents, pay settlements this year are averaging 3.6%, and companies expect similar growth in 2027. They noted there is “limited pass-through” of the energy shock caused by the Iran war, indicating that the economic impact has not yet translated into higher wages.
The findings highlight a subdued labor market, where businesses are not feeling pressured to offer larger pay increases. This could be a key factor in maintaining stability amid rising inflation.