UK Wage Growth Remains Strong Amid Signs of Job Market Weakening
British pay growth outpaces forecasts, while unemployment edges higher and employment declines.
Wage growth in the United Kingdom remained robust in the three months to November 2024, with private-sector pay excluding bonuses rising to six percent, up from 5.5 percent in the previous three months, according to data released on Tuesday.
This marked the strongest wage growth since February 2024 and exceeded the Bank of England’s forecast of 5.1 percent for the fourth quarter of 2024.
Despite the sustained rise in wages, other indicators pointed to a softening labor market.
The unemployment rate increased slightly to 4.4 percent in the three months to November, its highest level since the period ending in May 2024. Separate data from tax authorities showed a decrease in employee numbers by forty-seven thousand in December, the largest drop since November 2020, following a decline of thirty-two thousand in November.
Vacancy numbers also continued to fall, reflecting weaker demand for labor.
Business surveys have reported a sharp decline in employment outlooks since the announcement of significant tax increases on employers by Finance Minister Rachel Reeves in her October 30 budget.
The combination of persistent wage growth and weakening labor market metrics poses a challenge for the Bank of England, which has been monitoring private-sector pay growth as a key indicator of domestic inflationary pressures.
Pay growth for the overall economy, excluding bonuses, rose 5.6 percent in the year to November, slightly above economists' expectations of 5.5 percent.
The BoE is widely expected to reduce its main interest rate by a quarter percentage point to 4.5 percent at its next meeting on February 6, 2025, with further rate cuts anticipated later in the year.
Sterling and market expectations for monetary policy remained largely unchanged following the release of the data.
The UK economy has faced challenges in recent months, stagnating in the third quarter of 2024 due to concerns about impending tax hikes.
The Bank of England estimates that growth was flat in the final quarter of 2024 as well, reflecting the broader economic headwinds facing the country.
This marked the strongest wage growth since February 2024 and exceeded the Bank of England’s forecast of 5.1 percent for the fourth quarter of 2024.
Despite the sustained rise in wages, other indicators pointed to a softening labor market.
The unemployment rate increased slightly to 4.4 percent in the three months to November, its highest level since the period ending in May 2024. Separate data from tax authorities showed a decrease in employee numbers by forty-seven thousand in December, the largest drop since November 2020, following a decline of thirty-two thousand in November.
Vacancy numbers also continued to fall, reflecting weaker demand for labor.
Business surveys have reported a sharp decline in employment outlooks since the announcement of significant tax increases on employers by Finance Minister Rachel Reeves in her October 30 budget.
The combination of persistent wage growth and weakening labor market metrics poses a challenge for the Bank of England, which has been monitoring private-sector pay growth as a key indicator of domestic inflationary pressures.
Pay growth for the overall economy, excluding bonuses, rose 5.6 percent in the year to November, slightly above economists' expectations of 5.5 percent.
The BoE is widely expected to reduce its main interest rate by a quarter percentage point to 4.5 percent at its next meeting on February 6, 2025, with further rate cuts anticipated later in the year.
Sterling and market expectations for monetary policy remained largely unchanged following the release of the data.
The UK economy has faced challenges in recent months, stagnating in the third quarter of 2024 due to concerns about impending tax hikes.
The Bank of England estimates that growth was flat in the final quarter of 2024 as well, reflecting the broader economic headwinds facing the country.
