The Bank of England’s Decision Maker Panel survey shows that UK firms expect inflation to rise to 3.5% within the next year, as of the quarter ending in September. The three-month average expectation climbed to 3.4%, the highest since February 2024, while three-year expectations held steady at 2.9%. UK firms saw a slight increase in their annual own-price growth, rising to 3.8% in September, up by 0.1% from August. They expect their own-price inflation to stay at 3.7% for the coming year, a rate unchanged since July. Employment expectations remain flat at 0.0% for the three months leading to September.

Impact On The Currency

At the time of the report, GBP/USD rose by 0.18%, trading around 1.3500. Inflation indicates how prices of a basket of goods and services change, typically shown as a percentage change month-to-month or year-to-year. The Consumer Price Index (CPI) measures these changes and is closely watched by central banks. High inflation often raises a country’s currency value because central banks adjust interest rates to combat inflation, which in turn influences foreign exchange and gold prices. As interest rates rise, gold becomes less appealing compared to interest-bearing investments. When inflation is lower, it presents a better investment case for gold. UK firms now anticipate inflation at 3.5% over the next year, suggesting that price pressures are still a concern. This information is significant for the Bank of England, as they rely on this data to make decisions about interest rates. This slight increase indicates businesses are preparing for higher costs. The survey aligns with previous findings, as the Office for National Statistics reported that August 2025’s headline CPI was 3.1%, well above the 2% target. Companies planning a 3.7% price increase in the coming year suggests inflation is becoming ingrained, complicating decisions for the Monetary Policy Committee.

Interest Rates And Market Strategy

With these persistent inflation expectations, the likelihood of the Bank of England cutting interest rates before the year ends seems to be fading. We recall the inflation challenges of 2022-2023, and the central bank aims to avoid a similar scenario. They are likely to maintain current interest rates for a longer period. In the derivatives market, this trend hints at a stronger British pound. Traders might consider call options on GBP/USD, anticipating breaks above the current 1.3500 level. A central bank that’s cautious tends to support its currency, and the market reflects this sentiment. We can also expect more volatility in the UK government bond market, or gilt market. The potential for sustained higher rates could keep yields on 2-year gilts, currently around 4.8%, from declining. Traders may use interest rate futures to bet on yields staying high through the final quarter of 2025. One important factor to monitor is the flat expectation for employment growth. If the broader UK job market shows significant signs of weakness, the Bank of England might have to rethink its strategy, despite inflation concerns. This poses a risk for those betting on a stronger pound and rising interest rates. Create your live VT Markets account and start trading now.

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