The Bank of England’s October 2025 Decision Maker Panel (DMP) report provides the UK with a snapshot of how thousands of UK businesses perceive inflation, wages, and uncertainty. While the data covers the economy as a whole, its signals are particularly relevant for the housing and construction sectors, as these are industries that are acutely sensitive to costs, confidence, and credit conditions. Hence, this week it has become the subject of our weekly blog, where we try to sift through the noise and find a bit of alpha for our readers.
This month’s survey suggests that businesses are preparing for a year of subdued price growth in 2026, slower wage growth, and rising uncertainty. For UK housing developers, these trends could reshape investment strategies, margins, and market demand. The DMP’s headline figure shows firms realised own-price inflation falling slightly, from 3.9% to 3.8% in the three months to October. Year-ahead expectations remain stable at 3.7%, indicating that the firms polled anticipate little further cost easing through 2026. This stability is a double-edged sword for developers, and not a small one either, one of those giant medieval ones in the limb removal business.
On the one hand, the sharp spikes in materials and energy prices seen during 2022–23 have stabilised. Input inflation for goods producers, which includes manufacturers of steel, cement, and other building materials, has remained flat at 3.2%, offering some breathing room for contractors and suppliers. On the other hand, services inflation, covering professional fees, labour subcontracting, and logistics, remains higher at 4.2%. This imbalance mirrors what many housebuilders are seeing on the ground: materials have levelled off, but the “soft costs” of planning, design, and compliance continue to creep upward.
Firms across the economy expect little change over the next year. Goods producers seemingly anticipate steady prices in the report, while service providers forecast a modest 0.3-percentage-point decline. For developers, this suggests that cost pressures may not worsen dramatically, but they will also not quickly recede. In an environment where land values are already stretched and mortgage affordability remains tight, even small cost overruns can erode margins.
The report states that annual wage growth fell by 0.1 percentage point to 4.5 per cent in the three months to October 2025, with year-ahead expectations at 3.7 per cent. In plain terms, firms expect pay growth to slow by roughly 0.8 percentage points over the coming year. For construction and housing, this gradual easing could finally relieve one of the sector’s biggest headaches of recent years: labour shortages and spiralling site wages. From bricklayers to project managers, pay pressures have forced developers to either absorb higher costs or delay projects. If wage growth stabilises near 3–4%, the labour environment may become more predictable, helping firms to forecast building expenses more accurately. However, wage moderation also signals weaker household income growth, which could be a potential drag on housing demand. Slower earnings growth, when combined with high mortgage rates, constrains first-time buyers and move-up purchasers alike. Developers targeting middle-income buyers may therefore face subdued off-plan sales and more extended absorption periods.
Perhaps the most striking finding in the report is the rise in overall business uncertainty. In October, 59% of firms said the uncertainty facing their business was “high or very high.” This is the sharpest uptick in sentiment since early 2024. While sales uncertainty has increased, price uncertainty has actually decreased, a subtle but essential distinction. Businesses feel more confident about where prices are headed, but less sure about demand and broader economic conditions.
So, what would be the strategic implications here for developers in our market? The moderation of price and wage inflation is welcome but fragile. Developers should continue to stress-test budgets under scenarios where service inflation and borrowing costs remain sticky. Value engineering and supplier negotiations will stay at the forefront, and with financing still expensive and uncertainty high, large-scale schemes may be more complex to justify. We likely expect more phased developments, joint ventures, and build-to-rent partnerships designed to spread risk and reduce upfront capital exposure, all projects that we fund as a platform and our sector supports as a whole. As wage growth cools, developers may finally see relief on subcontractor costs. However, the industry must avoid complacency; skills shortages in trades and green construction expertise remain acute. Strategic apprenticeships and supply-chain partnerships can secure long-term resilience, and we anticipate that much of this will be driven at the state level.
To put it simply, this is a transitional moment for the UK housing market. If the data here is anything to go by, the results show an economy moving from inflation anxiety to uncertainty anxiety. Prices are steadying; wages are softening; yet confidence has dipped. For the housing development sector, that combination means stability without conviction, a new landscape in which margins may narrow, but opportunities still exist for those agile enough to adapt. If inflation continues to drift lower through early 2026 and the Bank of England begins gradual rate cuts as we anticipate, sentiment could improve rapidly. Developers who maintain disciplined cost control and strategic flexibility through this period will be best placed to capitalise on the eventual rebound in housing demand, and we will continue to be there by their side.
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