Wage growth accelerates in last quarter of 2024

WAGE growth in the UK picked up in the final three months of 2024, according to official data released on Tuesday.

The increase highlights why the Bank of England (BoE) remains cautious about cutting interest rates despite broader economic weakness.

The Office for National Statistics (ONS) reported that private-sector pay, excluding bonuses, rose by 6.2 per cent compared to the same period a year earlier.

This marked the fastest increase in a year and was up from 5.9 per cent in the three months to November.

Sterling strengthened against the dollar following the data release.

Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales (ICAEW), said the figures did not indicate a deterioration in the economy, making a rate cut at the BoE’s March meeting unlikely.

However, he noted that "the downward pressure from a stagnating economy, a loosening labour market, and April’s jump in businesses' costs mean this current upswing (in pay growth) is likely to be short-lived."

Employers have expressed concerns that chancellor Rachel Reeves' plan to raise social security contributions from April will affect hiring and wage growth.

Despite the recent pay increases, wage growth remains above the level needed to meet the BoE’s 2 per cent inflation target.

Earlier this month, the central bank estimated that private-sector wages grew by 6.3 per cent in the fourth quarter of 2024, slightly higher than the ONS figure, with an expected slowdown through 2025.

BoE chief economist Huw Pill told Reuters last week that supply constraints, including a worker shortage, were a key factor in the UK's sluggish economic performance.

The ONS said total pay, excluding bonuses, rose by 5.9 per cent in the three months to December, the highest since April 2024.

Including bonuses, earnings were up by 6.0 per cent, the fastest since late 2023. A Reuters poll had predicted a 5.9 per cent rise in both measures.

The BoE expects pay growth to slow as economic weakness affects the labour market. GDP remained flat in the third quarter of 2024 but grew by 0.1 per cent in the final three months of the year.

A survey released on Monday indicated that about one in three employers planned to cut jobs in response to Reeves' tax increase.

Vacancies fell by 9,000 in the three months to January compared to the previous three-month period but remained 23,000 higher than pre-pandemic levels.

Separate tax authority data showed the number of employees increased by 21,000 in January from December, marking only the third rise in the past eight months.

The unemployment rate, based on a survey that the ONS is revising and no longer considers fully reliable, remained at 4.4 per cent.

(With inputs from agencies)