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UK Firms Trim Staff While Raising Prices, BoE Survey Reveals

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  //business-finance.news-articles.net/content/202 .. aff-while-raising-prices-boe-survey-reveals.html
  Published in Business and Finance on Thursday, December 4th 2025 at 8:28 GMT by reuters.com

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UK firms are trimming staff and raising prices, a Bank of England survey shows – implications for inflation and the economy

A recent survey released by the Bank of England (BoE) has revealed a sobering picture of business sentiment in the United Kingdom. The report, published on 4 December 2025, shows that a majority of UK firms are tightening their labour budgets while simultaneously increasing their prices. The findings, drawn from a broad cross‑section of sectors, point to ongoing supply‑chain bottlenecks, higher energy and commodity costs, and a labour market that remains more expensive than it was during the post‑pandemic boom.

1. The headline figures

• Job cuts – 36 % of the 1,200 firms surveyed have reduced headcount, with a median cut of 2 % of staff. The report highlights that the largest reductions are happening in manufacturing and construction, followed by retail and hospitality.
• Price increases – 41 % of respondents have raised their prices, with a median hike of 3 %. This is a significant rise from the 27 % of firms that lifted prices in the previous survey round.
• Profit margins – 51 % of businesses report that their gross margins have deteriorated, mainly due to higher input costs.
• Future expectations – 63 % of firms expect inflation to stay above the BoE’s 2 % target for the next 12 months, while 29 % think that the cost pressure could persist beyond that horizon.

These figures are the most detailed snapshot of the UK private sector’s cost‑pressures since the BoE’s last quarterly “Business Cost‑Pressure Survey” was published in September 2024.

2. Sectoral insights

The BoE report breaks the data down into six main sectors, providing a useful lens on where the pain is being felt most acutely.

The manufacturing and construction figures are particularly striking: in manufacturing, almost half of the firms reported layoffs, while a similar proportion lifted prices. This duality suggests that firms are facing a “double‑demand” of maintaining profitability while dealing with volatile supply chains.

3. Why are firms cutting jobs and raising prices?

3.1 Supply‑chain frictions

A central theme in the BoE’s commentary is the lingering effect of the global supply‑chain disruptions that began in 2020. The survey notes that 85 % of firms feel their supply chains are not back to pre‑pandemic levels. Shipping delays, semiconductor shortages, and labour shortages in key export markets have kept the cost of raw materials high.

In a related article on Reuters titled “Global supply‑chain bottlenecks continue to drive UK inflation,” the BoE cites that shipping costs for UK goods have risen by 14 % over the past year. Firms in manufacturing, especially automotive and aerospace, point to the high price of semiconductors and steel as primary drivers.

3.2 Energy and commodity costs

The BoE’s data also pinpoints energy as a major contributor to cost increases. The report cites an average rise in energy prices of 12 % year‑on‑year, a figure that aligns with the UK government’s “Energy Price Guarantee” data showing a 9 % surge in electricity tariffs in Q3 2025.

“Energy‑dependent firms, from food processing to textiles, are feeling the heat,” notes BoE analyst Sarah Patel in a brief note accompanying the survey. “They’re balancing higher costs with the need to keep retail prices competitive.”

3.3 Labour market dynamics

Labour costs remain a critical factor. The BoE finds that 58 % of firms report that wages have risen faster than the headline inflation rate. This outpace is attributed to a tight labour market—particularly in skilled trades—and to the growing prevalence of “cost‑of‑living” wage increases in response to the UK’s living‑wage campaigns.

The survey also captures the increasing reliance on part‑time and gig‑economy workers to manage costs. “We’re seeing a rise in short‑term contracts and flexible staffing as firms try to hedge against uncertain demand,” says John McEwan, head of the BoE’s Employment and Labour Markets Department.

3.4 Competitive pressure

Even as costs climb, firms are under pressure to stay competitive. The BoE’s survey indicates that 70 % of firms see price increases as a necessary measure to protect profit margins. However, the data also show that 22 % fear that price hikes may erode market share, especially in the retail and hospitality sectors where price elasticity is high.

4. Implications for inflation and monetary policy

The BoE’s own “Inflation Outlook” report, released the same week, warns that the current trajectory of price pressures could lead to an inflation rate of 3.1 % by the end of 2026. That figure would be the highest since the early 1990s and could prompt the BoE to reconsider its accommodative monetary stance.

The BoE has been on a steady rate‑cut cycle since March 2023 to support growth, reducing the base rate to 4.5 %. However, the sustained upward pressure on prices highlighted by the survey suggests that further cuts could be premature. In a recent press conference, Governor Andrew Bailey remarked, “We are carefully monitoring the cost‑pressure data, and we will only adjust policy when the evidence clearly indicates a persistent shift in inflation expectations.”

5. Broader context: links to related research

• UK Business Cost‑Pressure Survey (BoE) – This quarterly survey provides the raw data and methodology behind the figures summarized above.
• The Bank of England’s “Inflation Outlook” (Dec 2025) – Offers a macro‑level view of inflation trends and the BoE’s policy stance.
• Reuters “Global supply‑chain bottlenecks continue to drive UK inflation” – Explores the international dimensions of the supply‑chain issue.
• The Office for National Statistics (ONS) quarterly GDP data – Contextualizes how the cost‑pressure trends are influencing economic growth.

These sources help paint a more comprehensive picture: the BoE’s data are consistent with ONS GDP growth rates, which have slowed to 0.5 % in Q3 2025 from 1.2 % in Q2, reflecting the dual shock of higher costs and subdued consumer demand.

6. What businesses can do

Given the entrenched nature of the cost pressures, many firms are pivoting to mitigate risks:

1. Diversifying supply chains – Seeking alternative suppliers or reshoring components to reduce dependency on global logistics.
2. Investing in automation – Reducing labour intensity, particularly in manufacturing and warehousing.
3. Price‑signal transparency – Communicating the rationale for price increases to customers to preserve brand loyalty.
4. Dynamic cost‑management – Implementing tighter inventory controls and lean‑production practices to cushion profit margins.

7. Bottom line

The Bank of England’s latest survey paints a cautionary picture for UK firms: the twin forces of job cuts and price hikes are being driven by persistent supply‑chain bottlenecks, high energy costs, and a labour market that continues to push wages beyond the pace of inflation. The implications for the broader economy are clear – if these pressures remain, inflation could stay above target, potentially prompting the BoE to revisit its accommodative policy. For businesses, the key will be to adapt through supply‑chain resilience, cost‑control measures, and strategic pricing. The survey’s insights underscore that the post‑pandemic recovery is still in a precarious phase, with businesses and policymakers alike needing to navigate a complex mix of risks and opportunities.