Agents' summary of business conditions - 2022 Q3

We regularly publish a summary of reports compiled by our twelve regional Agents following discussions with at least 700 businesses across the UK every reporting period.
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Demand and output

Output growth weakened in some sectors, reflecting a slowdown in demand due to the uncertain economic outlook.

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Employment and pay

Employment intentions slowed and recruitment difficulties had stabilised; nominal wage inflation increased further.

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Costs and prices

Input cost inflation remained high, with increasing cost pressures from energy and pay; companies expected to raise prices to protect margins.

Published on 22 September 2022


This publication summarises intelligence gathered by the Bank’s Agents between mid-July and late August. The Agents’ scores published alongside this document generally represent developments over the past three months compared with a year ago.

Agency contacts reported a modest slowdown in activity, with squeezed household incomes weighing on demand for some consumer goods and services. Output continued to be constrained by shortages of goods and labour in some sectors. But demand for business services and some manufactured goods remained robust.

Companies’ employment intentions slowed, and recruitment difficulties appeared to have stabilised. However, pay settlements had increased further and a large number of contacts said that they had given, or were considering giving, interim one-off payments to staff to help to offset rising living costs.

Companies reported that energy, pay and the weaker sterling exchange rate were becoming the main sources of cost pressures. Many contacts expected to continue to pass on higher costs into prices to protect margins, which remained squeezed.

Consumer spending

Annual growth in the value and volume of consumer spending fell, reflecting pressure on household incomes. This was particularly the case for consumer services.

Food retailers continued to report customers trading down to cheaper goods and cutting back on non-essential items, such as confectionery. Discount chains continued to gain market share. Sales volumes of household items, such as furniture, electrical goods and home-improvement products continued to fall.

By contrast, volumes of clothing and footwear sales were supported by demand for formal clothes as people returned to office-working. Contacts said that the heatwave boosted sales of summer clothing.

Consumer services contacts reported that squeezed household incomes had weighed on demand. In hospitality, sales volumes were below pre-Covid levels and many pubs reported falling revenues, though demand for takeaways and fast food remained robust.

Holiday bookings weakened, in particular for last-minute deals. Hotels and holiday park operators reported declines in on-site spending over the summer holidays, with off-peak bookings also lower than a year ago. Tourist venues said that visitor numbers remained below pre-Covid levels. Contacts thought that foreign tourists had been deterred by disruption at airports and ports earlier in the summer, while higher petrol prices were likely to have made domestic tourists reluctant to make long car journeys.

Contacts reported strong demand for financial services and legal advice, for example tax and wealth planning, equity release, debt consolidation and early repayment. Third sector organisations reported a large increase in demand for debt advice. In general, these contacts reported increasing demand for their services from people in employment as well as some in higher income brackets.

Business services

Business services firms reported strong annual growth in turnover, though demand for advertising and corporate transactions services had eased somewhat.

Business services contacts continued to report strong annual growth in turnover, particularly in IT, recruitment services and consultancy. Within professional and financial services, investment banks and accountancy firms reported strong demand. Insolvency practitioners also reported a modest pickup in demand.

By contrast, merger and acquisition activity was reported to be slowing to more normal levels; and contacts said that companies were becoming more cautious about discretionary spending. Advertising contacts said that revenues were flat compared with a year ago and leasing firms said companies were waiting for longer before replacing equipment.


Annual growth in manufacturing output slowed as demand weakened; supply constraints also continued to hold back production though to a lesser extent than previously.

Output growth was very weak, reflecting a drop in demand for consumer goods and retailers reducing order sizes. Demand for capital equipment, for example for mining and construction machinery, also slowed, reflecting higher operating costs and heightened uncertainty about the economic outlook.

However, contacts operating in pharmaceuticals and healthcare, engineering, electronics, and suppliers of products for infrastructure and some types of commercial and industrial property development said demand remained strong.

Shortages of goods and labour continued to weigh on output, though to a lesser extent than previously, and most contacts said that supply disruption had eased or stabilised in recent weeks. And companies had developed ways to alleviate supply-chain issues, such as building additional stocks, on or near-shoring production, redesigning products or diversifying supply chains.


Construction output growth weakened as high materials costs, labour shortages and economic uncertainty weighed on activity.

Contacts in residential construction said that planning delays and concerns about rising build costs had slowed the pace of new projects starting. Growth in domestic home improvements and maintenance had also eased. In social housing, new construction had been held back by budget constraints and commitments to refurbish existing properties.

By contrast, commercial construction activity remained strong, in particular for office developments in prime locations. Demand for warehouse and data centre premises also remained robust, but demand for retail and leisure premises weakened further.


Investment intentions were positive but had eased due to uncertainty about the economic outlook, rising costs and softer demand.

Contacts reported that they were continuing to spend on improving IT and automation, on energy-saving measures and on refurbishment and repurposing of premises.

However, a growing number of companies said that uncertainty about demand and the broader economic outlook and tighter financial positions had caused them to delay investment. High materials costs were also given as a factor in delaying investment plans. In addition, many companies said they had completed investment projects that had been delayed during the pandemic and were now returning to more normal levels of investment.

Corporate financing conditions

Credit availability tightened for companies of all sizes, while demand for credit was broadly flat.

Contacts said that the availability of bank and non-bank finance for small and medium-sized enterprises had tightened, in particular for consumer-facing firms or those exposed to higher costs. Insolvencies and restructuring activity among these firms continued to increase and was expected to pick up further in H2, albeit from a low base.

The cost of market finance was reported to have increased for large, investment-grade firms. And contacts said that sub-investment grade firms could no longer access sterling market finance. Although these firms were still able to access bank credit, borrowing costs were reported to have increased. Lenders were limiting their exposure to consumer-facing firms and the construction sector, which were deemed vulnerable.

Demand for bank and non-bank credit was broadly flat, as many firms refinanced on attractive terms in 2021, still hold high cash reserves or are repaying debt early. However contacts reported increasing demand for working capital and cash-flow finance to cover rising input costs in construction, wholesale and manufacturing.

As cash flow tightened, a number of contacts reported slower payments. Trade credit insurance cover was reported to be tight and tightening for some consumer-facing and construction contacts.

Employment and pay

Employment intentions slowed and recruitment difficulties stabilised, though many companies continued to struggle to find staff. Pay awards continued to increase, with more firms offering one-off payments to help with rising living costs.

Companies slowed the pace of their hiring plans overall. Contacts still wanted to retain skilled staff and said they would respond to weaker demand by slowing the pace of recruitment, reducing hours, redeploying staff or not replacing leavers. There was little evidence of firms actively reducing headcount due to economic uncertainty.

Recruitment difficulties appeared to have peaked, with staff turnover lower than previously as employees became more cautious about changing jobs. However, companies continued to struggle to find staff and contacts in a wide range of sectors said that labour shortages were constraining growth. Many companies said that vacancy and attrition rates were higher than normal.

Nominal wage inflation continued to increase, averaging around 6%, and a significant proportion of contacts said that they had given, or were considering giving, interim one-off payments to staff to help offset rising costs.

There were some reports of companies bringing forward their annual pay settlements in anticipation of further expected increases in consumer price inflation. Companies were also reviewing their remuneration packages more broadly to find other ways to compensate staff (for example by allowing more remote-working to offset rising petrol costs, increasing paid leave entitlement, or offering private healthcare or pension contributions).

Costs and prices

Companies said that energy, pay and the weaker sterling exchange rate were becoming the main sources of cost pressure; many contacts expected to continue to pass on higher costs into prices to protect margins, which remained squeezed.

Contacts said that input price inflation remained elevated, with any reductions in global raw materials costs at least partially offset by the weaker exchange rate and higher energy prices. Price pressures for imported finished goods remained elevated.

In manufacturing, output prices remained high as firms continued to pass on their increased costs to customers. Business services price inflation was also very high, with some firms reporting double-digit increases to offset wage inflation and rising fuel costs.

Retailers also reported rising input cost inflation, much of which would be passed on to consumer prices. For example, clothing and footwear prices were supported by strong demand and stock control. Contacts said food price inflation ranged between 6% and 12% and many expected it to rise further this year. But some supermarkets expected food price inflation to stabilise or even to fall back if demand weakens.

Inflation also increased further in consumer services. So far, this was mostly driven by non-labour input costs, though pay was also mentioned by a number of companies. Hospitality businesses reported passing through higher food and drink prices. But some contacts reported limiting price increases due to concerns about the impact of squeezed household incomes on spending.

Consequently, profit margins remained below normal on average, with many contacts, in particular those in consumer-facing sectors, saying that price increases were needed to limit further margin erosion. But margins were stronger in sectors where supply was constrained, for example in professional services.

Property markets

The housing market cooled as demand eased and the supply of properties increased. Investor appetite for commercial real estate weakened, though occupier demand remained strong for some properties.


Contacts said that prospective homebuyers had become more cautious due to concerns about rising living costs. This could weigh on house price inflation in the months ahead, though demand for property still exceeded supply.

Demand for rented properties remained strong, supporting rent inflation.

Commercial real estate

Contacts said investor demand had softened across all property types, in particular against a backdrop of rising interest rates. For example, vacancy rates in retail properties had started to increase.

However, occupier demand remained strong for industrial and logistics premises and prime office space.

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