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Employers expect their own selling prices to overtake pay next year

ended 07. September 2026

In the Bank of England's Decision Maker Panel, firms reported their average wage per employee up 4.0 per cent on the year, against 3.7 per cent on their own output prices, on the three-month average to August 2026. A year ahead, on the same three-month basis, they expect 3.4 per cent on wages and 3.8 per cent on their own prices. The order reverses, as it did in July's print. It is a survey, and the Bank sits outside the official statistics regime.

The year-ahead figures are employers' own probability-weighted expectations, not an economist's forecast. A price rise can be revisited next quarter. A pay rise is a recurring cost that is hard to take back. The survey never matches one firm's pay to its own prices, so read this as our judgement: pay is the number that gives way.

The comparator is firms' own selling prices across the whole economy, not just consumer-facing firms. Cost of living is a separate question: the same panel expects CPI of 3.1 per cent for the year ahead, below the 3.4 per cent they expect to pay. An HR consultant is setting a client's 2027 pay budget now.

  1. Is 3.4 per cent a realistic pay budget, or a number employers will be forced to break?
  2. Who feels it first: the client whose income plan assumes pay rises of 4.0 per cent, or the owner-manager setting both numbers?
  3. Have you advised on a 2027 pay number yet, and where did you land? Do you have a client whose plans this changes? If so, please give as much colour and detail as possible.

2 responses from the Newspage community

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Editor
Nouran Moustafa
Practice Principal & IFA at Roxton Wealth
3.4% is a budget, not a promise. I think plenty of employers will start there and some will struggle to deliver even that. A business can put prices up, down or sideways next quarter. A pay rise is tattooed onto the payroll.

The bigger danger is employees financially spending a 4% pay rise before they have earned it. I would not build a client's mortgage, pension or lifestyle plan assuming wages keep rising at 4%. I would model closer to 3% and treat anything above that as a bonus.

For owner-managers, 2027 could become a brutal choice between protecting margins and protecting people. If revenue does not keep pace, something has to give: hiring, bonuses, investment or pay.

My rule is simple: never build tomorrow’s lifestyle around tomorrow’s pay rise. The most expensive salary is the one you have already spent before it arrives.
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Editor
Tony Sanchez
Founder at Bridging Loan Directory
A 3.4 per cent pay budget may work as an economy-wide expectation, but small employers cannot treat it as an isolated number. Salary is only part of the cost of employing someone, and once pay rises it becomes a recurring commitment regardless of what happens to revenue.

I have two salaried members of staff, with the rest of the business supported by freelancers and contractors. Rising employment costs have influenced that structure because taking on another permanent employee creates costs and commitments beyond their headline salary.

We have not fixed a 2027 pay figure yet. It will have to reflect affordability, performance and the need to retain good people. But with employment and other operating costs continuing to rise, businesses cannot absorb everything indefinitely. Our own prices will also have to increase. The owner-manager feels both sides: deciding what the business can afford to pay while judging how much of that additional cost customers will accept.