Wage growth accelerates again as concerns about inflation rise
Wage growth accelerated again in the final quarter of last year, new figures show, in a reminder that the UK economy still faces sticky price pressures.
According to figures released by the Office for National Statistics (ONS), annual regular pay growth averaged 5.9 per cent in the final three months of last year, up from 5.6 per cent previously and the fastest pace since last April.
Total pay growth – which includes bonuses – hit 6.0 per cent in the same period, also up from 5.6 per cent. This was the fastest rate of wage growth since November 2023.
“Growth in pay, excluding bonuses, rose for a third consecutive time, with increases in both the private and public sector,” Liz McKeown, director of economic statistics at the ONS said.
Pay growth in the private sector averaged 6.2 per cent between October and December, the highest level since November 2023.
Labour market stagnant
Unemployment, meanwhile, remained steady at 4.4 per cent. Economists had expected to see a slight increase to 4.5 per cent.
Other indicators suggested that the labour market was broadly stagnant. The number of payrolled employees fell by just 3,000 between October and December, compared to the previous period.
The early estimate for January suggests a marginally better outlook, with the number of payrolled employees rising by 0.1 per cent, although these estimates are likely to be revised.
Multiple business surveys have pointed to a bleak outlook for the jobs market in recent months, as firms face the impact of the government’s tax hikes.
But the official data suggests the jobs market is proving more resilient. “All in, it looks like the labour market is holding up much better than the dire employment surveys would suggest,” Thomas Pugh, an economist at RSM said.
But Nicholas Hyett, investment manager at Wealth Club, warned that the strength of the labour market could fade fast in the new year.
A survey published earlier this week showed that a quarter of firms expect to make redundancies in the next quarter, the highest proportion in a decade, excluding the pandemic.
“The government will be watching the next few months’ numbers through their fingers,” Hyett said.
Wage growth a concern
While the figures were roughly in line with City forecasts, the acceleration in pay growth suggests that inflationary pressures remain elevated and may prevent the Bank of England from cutting interest rates aggressively.
Michael Brown, chief research strategist at Pepperstone said the rate of pay growth was “clearly incompatible” with inflation returning to target sustainably.
The Bank cut interest rates earlier this month, but many members of the Monetary Policy Committee have warned against rapidly reducing rates given lingering price pressures.
“We’re not in a situation where we can declare job done,” Huw Pill, the Bank’s chief economist, said, citing the “surprising” surge in wage growth.
However, policymakers expect wage growth to fall gradually as slack continues to build in the labour market.
The Bank forecasts that annual wage growth will fall to 3.7 per cent across 2025, as more people go for fewer jobs, which will enable a gradual pace of rate cuts.
“Today’s data release provides little evidence that the Bank will deviate from its current gradual approach to interest rate cuts,” Ashley Webb, UK economist at Capital Economics, said.