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UK wage growth slowed in the three months to November as employers cut headcount ahead of the Budget, according to official data that will help reassure the Bank of England that inflation pressures are easing.
Excluding bonuses, the 4.5 percent annual increase in average weekly earnings was in line with analysts’ expectations and down from 4.6 percent in the three months to October.
Private sector wage growth, which BOE policymakers see as a key indicator of underlying inflation pressures in the economy, slowed to 3.6 percent excluding bonuses in the three months to November, down from 3.9 percent the previous month.
Public sector pay increases were higher at 7.8 percent, partly because pay awards were made earlier this year than in 2024.
The unemployment rate remains at 5.1 percent, its highest level since the beginning of 2021, following a prolonged period of weak hiring.
The Office for National Statistics said on Tuesday that payroll employment was 155,000 in the three months to November, down 0.5 percent from a year earlier. The redundancy rate increased by 1.1 percentage points to 4.9 percent.
Provisional figures showed payroll employment fell by 43,000, or 0.1 percent, in December, following Chancellor Rachel Reeves’ tax-hike budget, although these figures are provisional and likely to be revised.
However, evidence that workers are losing bargaining power may not be enough to convince the Monetary Policy Committee to cut interest rates below the current level of 3.75 percent when it next meets in February.
Ashley Webb at consultancy Capital Economics said that despite headline wage growth being relatively stable despite a sharp decline in private sector earnings, “the next policy meeting in February may be too soon for another interest rate cut”.
He said that could change if inflation data due on Wednesday proves to be much weaker than expected and the door to cuts would be pushed forward.
KPMG chief economist Yael Selfin also said that more hawkish MPC members “could argue that there is no immediate sign of a significant deterioration in the labor market”, although the data “should make room for an interest rate cut at subsequent meetings”.
In a more positive sign, a long-running decline in vacancies ended, with the number of job openings increasing by 10,000 in the three months to December compared with the previous quarter.
Employers’ reductions in headcount have been concentrated in sectors such as retail and hospitality, which employ large numbers of young people and were hardest hit by last year’s rise in national insurance contributions.
The rise in youth unemployment has prompted ministers to focus on helping those struggling to enter the jobs market, launching a review into the causes of youth inactivity and trialling a new scheme offering state-funded work placements for 18 to 21-year-old benefit claimants.
The Department for Work and Pensions said on Tuesday it was set to open applications for employers to deliver these placements, with an initial rollout to 1,000 young people before a national expansion.
Work and Pensions Minister Pat McFadden said Tuesday’s figures showed “why we must move further, especially for our young people”.
He urged employers to “come forward” and join companies such as JD Sports and Tesco who have already committed to the scheme.
The pound was up 0.4 percent after the data against a broadly weaker dollar at 1.348.
Additional reporting by Ian Smith
