Wage growth slows as number of people employed falls
Wage growth in the UK fell to 4.5% between September and November following a sharp slowdown in private sector wage growth, official figures show.
According to the Office for National Statistics (ONS), the wage growth rate for employees in private businesses has fallen to its lowest rate in the last five years.
In contrast, public sector workers saw their pay rise, but the ONS said this was likely due to earlier pay increases compared to the previous year.
Meanwhile, the number of people on company payrolls continued to fall – a drop of 135,000 in the three months to November – particularly in shops and hospitality.
This is despite the economy heading into the crucial Christmas season, when companies traditionally hire more bar and shop staff.
Average wages, excluding bonuses, slowed after a 4.6% increase between August and October.
Sanjay Raja, Deutsche Bank’s chief UK economist, said the slowdown in wage growth was “really encouraging” in terms of increasing the likelihood of future rate cuts.
“I know it sounds strange when we say lower pay rises are a good thing,” Raja told the BBC’s Today programme. “But it’s a good thing for the Bank of England, which is trying to control inflation.
“This makes the Bank more comfortable about the future path for inflation to return to the 2% target.”
Inflation, which measures the pace of price increases, fell from 3.4% to 3.2% in November. The ONS will publish December data on Wednesday.
Higher wage growth often triggers inflation because consumers demand more goods and services and can pay more for them. The Bank of England uses higher interest rates to counter this, but can reduce interest rates when demand in the economy decreases.
The Bank of England has cut interest rates six times since August 2024; Borrowing costs were last reduced from 4% to 3.75% in December.
Economists expect the Bank of England to keep borrowing costs in February, when its interest-setting committee meets for the first time this year.
ONS data showed a stark difference between public and private sector pay rises in the three months to November.
The annual average public sector wage increase was 7.9%, while the increase in the private sector was 3.6%.
ONS director of economic statistics Liz McKeown said: “Wage growth in the private sector has fallen to its lowest rate in five years, while pay growth in the public sector remains high, reflecting the ongoing impact of some pay increases made earlier than last year.”
The unemployment rate remained at 5.1%; This is the highest level since early 2021, when the UK and the world were still grappling with Covid-19 and lockdowns.
