Bank of England survey shows easing inflation expectations

The data matters because the central bank has been watching closely for second-round effects from the recent oil-price shock tied to the Iran conflict and the risk of a price-wage spiral. Instead, businesses say demand is too soft to absorb significant price increases, 68% expect higher energy costs to squeeze margins over the next year, and sales volumes are seen stagnating in the months ahead.

That combination points to slower hiring and less wage pressure, which is exactly what would allow the Bank to turn more dovish without reigniting inflation. Berenberg’s Andrew Wishart said the survey supports a call for the BoE to resume cuts by year-end, while Barclays’ Jack Meaning said the report backs the case for a weakening labor market and contained medium-term inflation expectations.

Markets have already been leaning toward easier policy, and the latest read-through is supportive for gilts and rate-sensitive UK assets if the Bank keeps rates unchanged at its next meeting. It also leaves sterling vulnerable if traders push back expectations for how long rates can stay elevated, especially if oil prices retreat further over the summer.

The clearest near-term catalyst is the next BoE decision and any further move in energy prices, particularly if shipping and geopolitical risk around the Strait of Hormuz eases. A weaker inflation outlook and soft labor demand would give rate-setters more room to pivot from restraint to cuts.