In a concerning trend, wage growth in the UK has eased to 4.5% between September and November, according to the latest official figures. This represents a sharp slowdown in private sector pay increases, with the pace of growth for those employed by private businesses slowing to the lowest rate in five years.
The data from the Office for National Statistics (ONS) paints a mixed picture, with public sector workers seeing their wages jump, likely due to pay rises being awarded earlier than in the previous year. However, this was offset by a decline in the number of people on company payrolls, which fell by 135,000 in the three months to November, particularly in the retail and hospitality sectors.
This comes despite the economy heading towards the key Christmas season, when companies traditionally hire more pub and shop workers. Average wages, excluding bonuses, slowed from a 4.6% rise recorded between August and October.
Sanjay Raja, chief UK economist at Deutsche Bank, described the easing of pay growth as “really encouraging” for the likelihood of future interest rate cuts. He explained that for the Bank of England, which is trying to control inflation, lower pay growth is a positive sign, as it allows the central bank to be more comfortable with the future path of inflation returning to its 2% target.
Inflation, which measures the pace of price rises, hit 3.2% in November, down from 3.4%. The ONS is set to release the data for December on Wednesday. Higher pay growth typically drives inflation, as 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 cut them when there is less demand in the economy.
Since August 2024, the Bank of England has cut interest rates six times, most recently in December when borrowing costs were trimmed from 4% to 3.75%. Economists widely expect the Bank of England to hold borrowing costs in February when the rate-setting committee meets for the first time this year.
The ONS data showed a stark contrast between public and private pay growth in the three months to November, with annual average public sector pay growth at 7.9% compared to 3.6% for the private sector.
Liz McKeown, director of economic statistics at the ONS, said: “Wage growth in the private sector has slowed to its lowest rate in five years, while public sector wage growth remains elevated reflecting the continued impact of some pay rises being awarded earlier than they were last year.”
The unemployment rate remained at 5.1%, which is the highest since early 2021 when the UK and the world were still grappling with the COVID-19 pandemic and lockdowns.
