Bank of England latest report shows job slip as NICs bite

The Bank of England’s latest Decision Maker Panel offers a cool-headed snapshot of corporate Britain that matters for every lender, broker and servicer in the mortgage trade. Read across the August returns and three themes stand out: price pressures are no longer fading, wage growth is easing, and firms are trimming headcount at the margin. None of this screams crisis, but it does argue for a cautious glide path rather than a rapid reset in mortgage pricing and risk appetite.

Prices: sticky rather than surging

Firms reported realised own-price growth of 3.7% in the three months to August, up 0.1 percentage points, and they expect the same 3.7% over the next year. Year-ahead CPI expectations nudged up to 3.3% (3.4% on the single-month read), with three-year expectations rising to 2.9% for the first time since January.

For mortgages, that combination keeps the “inflation normalisation” story intact but not complete. It is consistent with a rates path that edges lower only as confidence builds that CPI is durably headed towards target. In practice, it argues against aggressive front-loaded rate cuts being baked into swap curves. Lenders should expect wholesale funding to remain choppy around data prints, sustaining a premium for rate certainty on longer fixes.

Reported annual wage growth slipped to 4.6% and is expected to fall to 3.6% over the year ahead. If CPI lands near firms’ 3.3% expectation, that implies only modest real pay growth. For affordability models this is a double-edged sword: slower nominal wage gains limit borrowing capacity uplift, but easing pay pressure helps the inflation fight and, over time, reduces the stress-rate wedge between income growth and debt service.

Expect lenders to keep affordability calculators broadly where they are, with selective tweaks for segments showing steadier incomes (public sector, large-cap employers) and continued caution on variable and bonus-heavy earnings.

Realised employment growth was negative in the three months to August (−0.5%), and year-ahead expectations eased to a tepid +0.2%. That profile does not portend a sharp rise in unemployment, but it does remove a tailwind that helped households absorb higher repayments in 2024–25.

Operationally, that suggests two priorities. First, keep early-warning triggers tight: payment holidays, partial payments and revolving-credit utilisation are likely to be better arrears predictors than headline jobless rates. Second, retain flexible forbearance playbooks so that short-term income hits can be bridged without tipping accounts into costly cures.

Two-thirds of firms say they absorbed April’s higher employer National Insurance contributions via lower profit margins; a third raised prices; nearly half trimmed employment plans; a fifth paid lower wages than otherwise. For the mortgage market the lesson is simple: business customers are thinner-margined and more defensive than they looked a year ago.

That will filter through the ecosystem. Specialist lenders exposed to self-employed and small-company directors should expect more conservative declared-income trajectories and greater documentation churn. On the funding side, wholesale investors will look for comfort that lenders’ back books can withstand slower income growth among SME-heavy borrower cohorts; expect tighter scrutiny of buy-to-let portfolios with high proportions of incorporated landlords reliant on rental businesses facing higher labour and service costs.

With rates unlikely to collapse and wages easing, the incentive tilts further toward retention. Expect a continued bias to product transfers, sharper execution times on remortgages, and keen competition on fee structures rather than headline rates alone. Purchases should hold up where employment is resilient, but income verification is set to stay exacting.

Niche segments will diverge. Professional and public-sector borrower products look better supported by income stability. Self-employed, near-prime and high-LTV new-build cases will face tighter plausibility checks on future income and outgoings. Lenders with granular risk-based pricing will have an edge; one-size-fits-all rate sheets will struggle to reflect the cross-currents in this labour market.

Slightly higher inflation expectations and softer wages argue for a measured approach to lowering risk appetites and cutting pricing cushions. Expect internal capital models to retain conservative loss-given-default and cure-rate assumptions into 2026, particularly for cohorts that reset off ultra-low coupons and still face elevated total debt service ratios despite partial base-rate relief.

For building societies and bank lenders alike, the DMP tone points to gradual, not wholesale, tightening or loosening of credit policy. Value will be found in precision—micro-siting, property quality, and verified disposable income—rather than broad-brush expansions.

• Lock in diversified term funding and keep optionality on callable and structured notes; don’t assume a smooth downward path in swaps.
• Prioritise retention journeys that surface suitable product transfers three to six months ahead of maturity; use pricing nudges rather than cliff-edge offers.
• Tune affordability to slower wage growth: temper future-income uplifts, and give more weight to verified, stable components of pay.
• Sharpen early-arrears analytics and resource claims teams for a slow-burn, low-severity uptick in delinquencies rather than a spike.
• For specialist and self-employed segments, deepen SME income diligence and adjust ICR and top-slicing rules where business margins look squeezed.
• Keep an eye on three-year inflation expectations: any further drift up would argue for maintaining wider pricing buffers on five- and ten-year fixes.

The bottom line

August’s DMP does not rewrite the outlook; it underlines it. Inflation progress is ongoing but incomplete, wage growth is coming off the boil, and hiring is softening. For UK mortgages that means a market that inches, rather than sprints, towards easier conditions. Those who plan for a drawn-out transition—protecting margins, tightening execution and focusing on borrower resilience—will be best placed to grow, profitably, when genuine rate relief finally arrives.