Overview
This Agents’ summary of business conditions (ASBC) summarises intelligence from the Bank’s Agents considered by the Monetary Policy Committee at its March meeting. The intelligence was gathered in the six weeks to mid-February and so before the recent events in the Middle East. While these events may have coloured contacts’ views on some aspects of the points that follow, much of what is described will likely not have been directly impacted. The next ASBC, to be published on 24 April, will reflect contacts’ assessment of the impact of the Middle East situation on their businesses.
The overall economic picture is still lacklustre, and contacts remain cautious in their expectations for real activity. There is little evidence of consumer spending rallying so far this year. Manufacturing and business services contacts continue to expect flat to a modest pickup in volumes in 2026 H2. Construction contacts have become more downbeat with expectations of recovery pushed out to 2027. While weak in absolute terms, demand for and supply of credit seem to have increased modestly.
Spare capacity in firms seems broadly unchanged since the last round, a little below normal, having increased in the tail end of 2025. Weak or uneven demand continues to leave physical capacity underused in some production and consumer-facing sectors.
Employment intentions remain slightly negative this round, reflecting weak demand, higher labour costs and increasing automation. Further headcount reductions will likely be modest and achieved mostly through natural attrition and voluntary redundancies.
The latest intel suggests wage settlements will average 3.6% in 2026. This is higher than the 3.4% suggested by the Agents’ pay survey and reflects information we have since received from some very large employers. The average reported settlement for 2025 was 4%. Contacts continue to report lower pay pressures than last year owing to a looser labour market, concerns over profitability and affordability, and a relatively weak demand outlook.
Underlying consumer price inflation is expected to continue to ease. But there is uncertainty over the extent to which competitive pressures will bear down on food price inflation, or how consumer services prices will respond to subdued demand.
Consumer spending
Growth in consumer goods and services sales volumes remains subdued into 2026. Most contacts expect demand to remain weak in the near term, citing limited evidence of any recovery in consumer confidence so far.
Consumer demand for goods remains subdued, with sales growth mainly driven by price inflation as volumes continue to grow slowly. On balance, supermarket sales in nominal terms appear to be growing well, though largely sustained by price inflation. Supermarkets remain focused on their value offering, with consumers still perceiving the cost of living to be high. Other retailers generally report rising sales of consumer goods, despite footfall falling in some cases, but again, the growth is supported by price inflation with volume growth more muted. Demand for larger-ticket items such as furniture remains weak, given fragile consumer confidence. New car registrations are starting to pick up and are expected to be sustained in 2026, even though the level remains well below the pre-pandemic period.
Consumer services sector contacts report continued subdued demand across most of the sector and attribute this to consumers continuing to manage carefully their spending. Pubs and restaurants continue to report weak consumer demand, and many are still experiencing volume decline as customers visit less frequently and consume less. Hotels report a slight improvement in demand, while for leisure and visitor attractions demand remains largely flat. Demand for domestic holidays remains challenging, with last-minute bookings common. Those operating at the luxury end are doing better than lower-cost providers. Airports have seen growth in passenger numbers, although the pace is slowing. Travel operators have continued to see growth in demand for overseas travel, especially in all-inclusive bookings as consumers try to limit their total spend.
Investment
Investment intentions remain weak but seem to have stabilised, with fewer references to pulling back and more reporting they are maintaining spending, refurbishing and replacing, and investing in technology to improve efficiencies.
Weak demand has meant there has not been much planning for investment to increase growth or capacity, except where contacts want to get ahead of the market, or they have the financial headroom to invest for the medium term.
Professional services are still occasionally refurbishing or upgrading offices. They also tend to be more focused on investing in technology, including artificial intelligence (AI) and cyber security, than other sectors. AI investment is usually aimed at improving productivity rather than reducing headcount. Investment in buildings is often on hold due to higher construction costs making projects less viable, or due to planning slowing down the process.
Trade
The pace of contraction in manufactured goods exports volumes on a year ago is lower. Services export values growth continues. Contacts expect modest improvement in both through 2026, owing to increased automotive and defence exports, and exporters of business services diversifying into higher-growth regions.
Automotive demand remains modest but is expected to improve this year. Overseas demand for defence equipment has strengthened. Demand from the European Union (EU) remains weak. Post-Brexit trade frictions continue to weigh on exports, and there is increased competition from China as it re-directs its exports in response to US tariffs. Some had seen reduced demand from the US due to tariffs, but others reported being more competitive against Chinese/EU exporters to the US due to tariff differentials. Contacts are concerned about the impact of the Carbon Border Adjustment Mechanism regulation on trade with the EU, and uncertainty around US trade policy remains.
Steady annual growth in exports of professional and IT services continues. International tourism numbers and spend remain down on a year earlier, with fewer US visitors. Overseas student numbers appear to have plateaued at a lower level, with universities establishing an overseas presence to mitigate the impact.
Business and financial services
Business and financial services activity remains subdued, with revenues supported mainly by price inflation while volumes are broadly flat. Modest improvement is expected later in 2026, but confidence remains cautious.
Business services revenue growth remains weak, though sentiment has improved slightly as activity paused due to uncertainty about the Budget has restarted. IT services continue to grow, supported by spending on AI, cyber security and digitisation, while discretionary spend is still being deferred. Banking incomes are up year on year, and alternative lenders report strong growth. Professional services performance is mixed, with tax and legal services continuing to grow while insolvency activity remains broadly flat.
Recruitment firms report that revenues are still down on the same period last year, although some firms are seeing activity pick up slightly as hiring resumes in parts of the economy. Marketing and advertising revenues have contracted materially as firms continue to reduce discretionary spending. Overall, few contacts expect positive near-term volume growth, with ongoing client cost pressures and uncertainty around public sector procurement weighing on confidence.
Manufacturing and production
Manufacturing output remains weak, though the pace of contraction has eased, supported by a recovery in automotive activity and continued strength in defence, aerospace and renewables. Expectations remain subdued, with only stable or modest growth anticipated in 2026.
Manufacturing volumes remain slightly down year on year, though the pace of contraction has slowed. Automotive output continues to recover, although volumes remain constrained by electric vehicle mandates and global competition. Suppliers to renewables, defence and aerospace report continued strength, while construction-related manufacturers report weaker output reflecting ongoing softness in construction activity. Chemicals output remains down amid weak industrial demand, and consumer goods and food and drink volumes are slightly lower, consistent with cautious consumer spending.
Demand for capital equipment is mixed, constrained by weak investment intentions but supported by growing demand for automation. There are tentative signs of recovery in packaging volumes. Where growth is reported it tends to reflect idiosyncratic market-share gains rather than broader demand strength. Contacts expect any recovery in construction-linked manufacturing to be delayed until late 2026 or early 2027.
Construction
Construction output has declined further, and contacts have become more downbeat about the outlook, with recovery expectations pushed out into early 2027. Weak demand and high costs continue to constrain activity.
The decline in construction output on the same period last year has accelerated, with contacts citing weak demand, high build costs, uncertain or slow government funding, access to finance, and ongoing planning and regulatory delays. Private housebuilding output continues to fall as developers slow or pause new schemes, particularly high-rise and build-to-rent developments in London. Housing association starts have also weakened due to funding uncertainty and cost pressures, while new commercial projects remain scarce, with office schemes largely halted on viability grounds.
Infrastructure activity remains modestly positive, though pipelines are slow to convert into starts, while growth continues in energy, industrial and some public sector projects such as education and healthcare. Repair and maintenance activity has slowed as households, housing associations and local authorities manage budgets in the face of rising costs. Contacts do not expect constraints, particularly planning delays, to ease quickly, leaving expectations for 2026 weak overall with only a slow recovery expected thereafter.
Corporate credit conditions
Aggregate lending remains constrained by subdued demand. But both credit supply and demand have picked up slightly in recent weeks from a low base.
Competition among lenders has increased, particularly for higher-quality borrowers with growing sales and manageable leverage, and supply is widely described as good and better than a year ago. Interest rate spreads have fallen, and larger firms can readily access public and private debt markets. High street banks are making greater efforts to lend, including to small and medium-sized enterprises (SMEs) and mid-caps, while private credit lenders remain active.
Credit demand has increased modestly, driven by refinancing, selective investment and higher working-capital needs, but remains subdued overall as many firms continue to pay down debt and remain cautious about borrowing in a weak growth environment. Business distress is most evident in hospitality, particularly among SMEs facing weak demand and cost pressures, while construction firms and their supply chains are also showing signs of financial stress.
Employment and capacity utilisation
Employment intentions remain slightly negative this round, reflecting weak demand, higher labour costs and increasing automation. Any further headcount reductions are likely to be modest and achieved mostly through natural attrition and selective voluntary redundancies.
Just over half of firms plan to maintain their current staffing levels over the next 12 months. Larger firms remain more cautious about hiring than SMEs. Many organisations report that automation and AI-enabled productivity gains are allowing them to meet demand without additional hiring. Most do not quantify these savings. For those that do, estimates range from around 5% to 20% time saving for specific tasks, and as much as 70% for highly automatable activities, with some instances of near 100%. For some large professional services firms this is contributing to reduced demand for early‑career recruitment, including graduates, driven both by cost pressures and a lower volume of routine entry‑level work. At the same time, other sectors such as the trades, manufacturing and farming struggle to attract younger workers, leading to ageing workforces and concerns about future pipelines.
Slack across contacts is a little below normal, broadly unchanged from the last round, with weak or uneven demand continuing to leave physical capacity under‑used in several production and consumer‑facing sectors. Softening activity in late last year was reported by a number of manufacturers that supply the construction industry, where regulatory delays remain a constraint. In business services, lower utilisation reflects both softer pipelines and increased flexible working, which has led to less intensive use of people and offices. Where constraints are reported, they tend to stem from shortages of specific technical and specialist skills rather than demand pressure.
Labour costs
Contacts continue to expect pay pressures to ease in 2026 compared with 2025, with a looser labour market, concerns around profitability and affordability, and a relatively weak demand outlook all contributing.
The latest intel suggests wage settlements will average 3.6% in 2026. This is higher than the 3.4% suggested by the Agents’ pay survey and reflects information we have since received from some very large employers. The average reported settlement for 2025 was 4%.
Higher settlements, where they occur, tend to be driven by catch‑up following previous freezes or low awards, particularly for higher‑paid groups; ongoing recruitment or retention issues; trade union activity; and continued reliance on CPI benchmarks (often September CPI); and National Living Wage/Real Living Wage (RLW) uplifts of 4.1% and 6.7% respectively. Although, more contacts say they are considering stepping away from the voluntary RLW this year or next.
Non-labour costs
Non-labour cost inflation remains modest to slowly declining.
Material cost inflation remains modest. Imported finished goods inflation is also low, with import costs from the Far East helped by tailwinds from lower freight costs, exchange rate moves and spare capacity. Manufacturers’ domestic price inflation remains modest, though there are consistent reports of customer pushback where demand is subdued. Business-to-business price inflation is gradually coming down towards more normal levels. Further progress is expected this year with increasing reports of price resistance from clients, and low single-digit increases far outnumbering the larger price rises that had become more common over the past few years.
Profit margins remain squeezed where subdued demand has limited firms’ ability to pass on higher costs into pricing. Where companies have seen some improvement, it has often been quite limited and largely due to cost control. With little expectation of any imminent improvement in volumes, many contacts believe substantive recovery could be a long haul. And business rates increases will add to fixed costs for many businesses this year.
Consumer prices
Underlying consumer price inflation is expected to continue to ease.
Consumer goods inflation is still centred on food prices, often reported to be around 4% up on a year earlier. There’s been no change in the range of contacts’ expectations for food price inflation in 2026 of 2%-4%, but there is some clustering towards both ends of that range. Some contacts think there are still costs to be passed through or that grocers will ease back on the degree of competition, while others think most costs have now been passed through and expect competition to remain strong. Non-food price inflation has remained lower, and for some has been held down in recent months by discounting needed to shift unsold stock. Contacts expect non-food price inflation to remain low in the face of subdued demand and easing input cost pressures.
Consumer services inflation remains high but is gradually falling back. Many contacts report that it is difficult to increase prices without adversely affecting demand, other than for the prime offerings. While there are still some costs to be passed through, including food and drink, underlying pressures seem to be receding, including lower labour cost growth this year. Contacts expect price rises to be lower than last year, with some holding prices flat. Hospitality contacts are typically considering low single digit increases this year.
Property
Housing and commercial property markets remain subdued overall, with sharp regional and quality-based divergence persisting. Housing activity is weakest in London and the South, while prime commercial assets continue to outperform secondary stock.
Housing
Northern regions and Scotland report firmer activity and modest price growth relative to weaker conditions in London and the South, where prices are falling and transactions have stalled. Demand is strongest among first-time buyers and at the lower end of the market, supported by rising real wages and relaxed loan-to-income rules, though overall sentiment remains fragile. Secondary market supply is tight, with limited choice and slightly slower selling times, while the new-build sector remains very weak due to poor viability, high costs and slow sales, leading builders to cut starts or build to order. Rental markets remain tight, though rental inflation is moderating. Landlord numbers are shrinking, pushing some renters towards becoming first-time buyers.
Commercial real estate
Commercial real estate transaction volumes remain low as macroeconomic and political uncertainty continues to weigh on investor confidence. The market remains polarised, with strong occupier demand and rising rents for prime, environmentally sustainable assets in central locations, particularly offices and convenience retail, while secondary assets face rising vacancies and falling rents. Elevated construction and financing costs, alongside regulatory and planning delays, continue to undermine development viability, keeping activity focused on refurbishment and repurposing. Industrial demand remains robust, although there is evidence of some softening in momentum for larger units.
Outreach engagement
High costs of living, and employment concerns continue to be key themes.
Many participants feel that the official inflation rate doesn’t reflect their experience, and that it feels like everyday prices are still rising more quickly. Food costs are a major concern, and many say they have reached the limit of what they can absorb financially. Consequently, many report it is difficult to save; younger adults and students feel particularly exposed, often with no savings and increasingly reliant on overdrafts, credit cards or buy-now and pay-later services.
Participants describe a labour market that feels increasingly unstable, with insecure work, shrinking opportunities, high barriers to entry, and graduates and young adults struggling to find meaningful employment.
Use of food banks continues to rise and transport is a significant issue for some charity service users who often cannot afford public transport or access to a bike or car to get to the charities. Charities report that debt issues have shifted from consumer credit to essential living costs such as rent arrears and council tax debt, leaving many households in negative budgets.
Next publication date: 24 April 2026
