Agents' summary of business conditions - February 2026

Overview

This Agents’ summary of business conditions (ASBC) summarises intelligence from the Bank’s Agents considered by the Monetary Policy Committee at its February meeting. The intelligence was gathered in the six weeks to early January. It also includes the outcome of the 2026 Agents’ pay survey, which was in the field from 1 December 2025 to 6 January 2026.

Intelligence continues to describe a lacklustre economy. Even though uncertainty reduced a little following the Autumn Budget, contacts’ expectations for real activity have not improved. While some sectors continue to expect a modest pickup in real activity in 2026, consumer-facing contacts and manufacturers seem more pessimistic than the last round owing to rising unemployment and weak demand.

A little more spare capacity has opened up within firms over the last couple of months, primarily reflecting weak demand in production and consumer-facing sectors, but business services also report persistently low utilisation relative to pre-pandemic.

Employment intentions remain slightly negative. Headcount reduction is mostly via natural attrition, with contacts increasing their use of automation and artificial intelligence (AI) to boost productivity and reduce the need for headcount growth.

The widespread narrative from contact visits is for pay pressures to ease in 2026. This is supported by the latest Agents’ pay survey which suggests that settlements for 2026 will average 3.4%, compared to respondents’ realised average 2025 settlements of 4%.

Consumer-facing firms see a weakening in inflationary pressures in 2026. For goods, this is driven by an expectation of lower food inflation. Consumer services inflation is on track to continue its gradual downward trajectory. Contacts continue to report squeezed margins, with plans to rebuild typically focused on operating efficiencies, owing to weak demand limiting their ability to increase prices.

Consumer spending

Goods and services sales volumes remain subdued. Most contacts expect demand to remain subdued through 2026, citing rising unemployment and continued cost-of-living concerns.

Retailers saw volumes over the festive period as flat to slightly down with any sales growth driven primarily by price. Food performed a little better than non-food, with gift expenditure reported as being well down. Supermarkets continue to see modest volume growth, with consumers remaining cautious about total spend and forgoing treats. Demand for clothing remains slightly negative, with promotions needed to drive demand. Even though furniture and homeware retailers largely report flat demand, consolidation in the sector suggests overall demand is still falling. Demand for white goods remains low and very price sensitive. Technology sales had been growing strongly until the run-up to the Autumn Budget.

The automotive market remains in difficulty, with manufacturers having to restrict sales of conventional cars to meet electric vehicle targets, which in turn is leading to consumers keeping cars for longer or choosing used cars over new.

Hotels report that occupancy rates remain reasonably high. Pubs and restaurants report continued consumer caution, with customers ordering fewer courses and less alcohol than usual. However, hospitality spending in the run-up to Christmas seems to have been broadly in line with last year, even though seasonal corporate entertainment was weaker. Contacts report relatively robust demand for transport, supported by an ongoing trend towards staff spending more time in the office.

Investment

Investment appetite remains subdued, with investment plans now more stable but at low levels. Fiscal and wider policy uncertainty remains, even post-Budget, adding to an uncertain economic/demand outlook.

References to investment plans being cancelled or postponed have reduced. While uncertainty related to the Autumn Budget has lifted, contacts regard fiscal policy and the wider economic outlook as not conducive to investment. Many plans now focus on ‘essential’ investment, maintenance and catching up on reduced investment during 2024 and 2025. For some, labour costs and skills shortages, and the inherent efficiency gains available continue to motivate automation and updating tech, but others continue to extend replacement cycles and delay investment. Digital spend typically comprises software updates and adoption of AI, rather than hardware upgrades and increasingly counts as operating expenditure.

Contacts rarely mention access to or cost of borrowing, or constrained capacity as drivers of investment. Financial pressure receives fewer mentions, although motivation to improve profitability in the near term is holding down capital expenditure for some.

Trade

Manufactured goods exports continue to contract on last year due to weaker European Union (EU) demand and US tariff‑related disruption, while services export values grow steadily.

Manufactured goods exports fell as weaker EU demand, Chinese competition and continued US tariff‑related frictions disrupted trade, though a few firms noted some stabilisation in the US where UK tariffs were comparatively favourable. Chinese demand remains weak, but Middle Eastern and wider Asian markets have held up, and demand from construction, energy, aerospace and defence remains firm. Automotive softness continues. Growth in services export values is supported by professional, IT, construction and energy‑related work. Fewer US visitors have been replaced only in part by lower‑spending EU and Asian tourists. There are reports of diversion of Chinese exports into the UK.

Contacts expect modest improvement in 2026 as they shift focus toward India and the Far East alongside expected stabilisation in the US tariff regime.

Business and financial services

Annual business and financial services revenue growth remains subdued, supported by prices rather than volumes, which remain broadly flat. Confidence is still fragile.

IT services continue to grow due to strong demand for AI, cybersecurity and software‑based solutions, though discretionary projects remain on hold. Banking incomes are higher owing to improved net interest margins, and insurance revenue growth remains positive despite premium deflation. Professional services are mixed: restructuring and tax work remain solid, but mergers and acquisitions and property‑related activity continue to be held back by uncertainty. Haulage/logistics are broadly steady, while corporate hospitality revenues are weaker than last year, with Christmas particularly weak. Recruitment demand remains soft, and marketing/advertising revenues have contracted as large corporates reduce discretionary spend. Firms expect broadly similar conditions in early 2026, with hopes of improvement later in the year tempered by concerns around future fiscal policy, weak client confidence, cost pressures and public sector delays.

Manufacturing and production

Manufacturing and production output remain modestly down on last year, with confidence more subdued than the last round and growth reliant on only a few resilient sectors.

Firms report output slightly lower than a year ago as weak confidence, softer orderbooks and higher relative prices continue to weigh on demand. Chemicals, consumer‑facing goods, construction‑related suppliers and capital equipment producers all note persistently low activity. Automotive output has improved as temporary shutdowns unwind, and aerospace remains a key area of resilience, though defence contacts report new orders are slow to progress. Some contacts report pockets of growth linked to renewables, infrastructure and occasional market‑share gains, but these remain limited. Most firms expect output to stay broadly subdued but steady through early 2026, with some scaling back production rather than accepting low‑margin work.

Construction

Construction activity has weakened further on last year, with housebuilding and commercial development slowing and little improvement expected before late 2026

Contacts report that new‑build housing activity has stalled, held back by weak demand, elevated build and funding costs and persistent planning delays. Commercial development, particularly offices, remains largely paused due to high build and funding costs. Infrastructure activity is modestly positive with schemes subject to delay, while pockets of growth continue in industrial/data‑centre projects, energy schemes and public sector work. Repair and maintenance activity is rising steadily compared to the same period last year, supported by post‑Grenfell regulations. Overall, firms expect conditions to remain subdued through to mid‑2026, with any recovery dependent on lower financing costs, some improvement in planning and improved pipeline of projects. Some warn that capacity constraints could limit the pace of recovery once activity eventually picks up.

Corporate credit conditions

There is little news on credit availability or demand with weak borrowing appetite still the main constraint, and smaller firms most likely to claim high street bank credit is not available.

Contacts continue to describe credit supply as generally good, with high street banks actively seeking to lend, and larger firms raising finance without difficulty. A tail of smaller, weaker‑performing businesses still report pressure from lenders to reduce debt. Credit demand remains subdued as most firms prioritise paying down existing borrowing amid weak confidence and soft investment intentions.

High street banks continue to report low borrower distress levels. Insolvencies are expected to remain concentrated in small and medium businesses and largely voluntary. But there are some reports of more late payments, tighter trade‑credit insurance conditions, and rising bad debts in construction and discretionary consumer‑facing sectors.

Employment and capacity utilisation

Employment intentions remain slightly negative. Recruitment difficulties remain around normal, albeit with some persistent pockets of tightness in some areas.

Larger firms are more negative about their employment outlook than smaller ones. Contacts are mainly pursueing headcount reduction via natural attrition, with greater weight placed on technology, automation and AI to boost productivity and mitigate the need for headcount growth. Higher labour costs and the possible impact of the Employment Rights Bill, alongside weak demand, are also causing firms to scrutinise hiring decisions more closely. There are some reports of redundancies, although over a third of those companies visited in recent rounds had already achieved their desired headcount reduction. Employment intentions are strongest for business services and weakest for consumer-facing contacts, with a lot contingent on how the holiday trading period panned out.

Reported recruitment difficulties remain around normal on average, with persistent pockets of tightness for some skills and in some locations. Employee churn remains low, reflecting reluctance to move given uncertainty.

Contacts report spare capacity has increased over the past couple of months. This primarily reflects weak demand in production and consumer-facing sectors, but business services contacts also report persistently low utilisation rates relative to pre-pandemic. Much of the slack is concentrated in physical capacity, but there are still reports of labour hoarding where skills are scarce. Consistent with this, where Agents do occasionally hear of capacity constraints, they usually relate to skill shortages.

Labour costs

The average expected pay settlement as reported in the Agents’ pay survey for 2026 is 3.4%, down from the average of 4.0% that respondents say they made in 2025.^{footnote [1]}

The widespread message from intelligence gathered in normal contact visits is for pay pressures to ease in 2026, with contacts citing a looser labour market, concerns about profit/affordability, and relatively weak demand. Those with higher expected settlements report these being driven by: National Living Wage (NLW)/ Real Living Wage (RLW), catch-up following previous freezes/low pay awards at the upper end, ongoing recruitment or retention issues in specific areas, trade union activity, and CPI. These messages are broadly supported by the latest Agents’ pay survey.

Non-labour costs

Cost dynamics continue to support a gradual disinflation path for consumer price inflation.

Materials price inflation remains benign. Most contacts expect low single digit increases in materials costs in 2026 and that energy prices will be fairly stable. Imported goods price inflation is currently limited and this is expected to remain the case into 2026, in part due to China’s drive to increase goods production. Most UK manufacturers expect modest output price inflation in 2026.

Business-to-business pricing intentions vary, for example haulage firms expect to raise prices by 2%–3% in 2026, while sectors with demand well below normal expect flat or falling prices. Regulated services such as audit are planning price rises to offset wage inflation. For most business services, pricing intentions are for lower increases than in 2025. Firms continue to report squeezed margins, with plans to rebuild focused on operating efficiencies.

Consumer prices

Consumer-facing firms continue to see a weakening in inflationary pressures in 2026.

Despite some volatity at the end of 2025, food price inflation has peaked, and expectations in 2026 are in the range 2% to 4%. Contacts report that costs associated with the Extended Producer Responsibility regulation have been largely passed through into consumer prices; further incremental increases should be significantly less. Non-food consumer goods inflation remains low. Clothing and furniture retailers expect broadly flat prices in 2026. Hospitality and leisure firms mostly report lower planned price increases for 2026, typically around 2% to 4%, reflecting an expectation of more stable costs in 2026 and a continuation of weak demand.

Housing

The housing market shows slightly firmer sentiment, but activity remains subdued and recovery is expected to be gradual.

Estate agents report marginally improved sentiment entering 2026, though there is still little evidence of a pickup in viewings or transactions. The market continues to favour buyers, with supply expected to exceed demand in the near term. Activity remains especially weak in Central London, where higher‑end prices fell sharply last year and remain under pressure, while regions outside the capital expect broadly flat to modest price growth. Rental market inflation continues to moderate, but landlord exits ahead of changes to renters’ rights in England may tighten supply and add to affordability pressures.

Outreach engagement

Housing, energy and employment concerns continue to dominate households and charities.

Many participants describe further sharp rises in the cost of essentials, with energy prices a particular concern in the colder months, and housing costs, especially rents, a pressure point. Younger people and working families cite high day-to-day costs as a major barrier to saving towards a deposit on a first home.

Workers and those seeking employment describe a labour market that feels increasingly challenging and fragmented. The perception is that many of the jobs available are low-paid and/or insecure. Seasonal vacancies, particularly in hospitality, are lower than usual, and hybrid working has increased the level of competition candidates face for local jobs.

Charities continue to experience high demand for their services, although the demographics of service users has changed with more people facing ‘in-work poverty’.

Next publication date: 19 March 2026