UK Wages Surge Ahead of Inflation Rates
According to official figures released by the Office for National Statistics (ONS), average wages in the United Kingdom have continued to outpace inflation, showing growth across both public and private sectors. After adjusting for price increases, wages rose by 3.4% between October and December of this year compared to the same period last year.
The UK’s unemployment rate has remained stable at 4.4%, although the ONS advises that job figures should be interpreted with caution due to low response rates in its employment survey. These findings come after businesses expressed concerns about cutting their workforces and raising prices ahead of upcoming increases in April, which will see employers paying more National Insurance, minimum wages rising, and business rate relief reduced.
Excluding bonuses, the ONS reported a 5.9% annual increase in pay from October to December, up slightly from the previous figure of 5.6%. The private sector saw an earnings growth of 6.2%, while public sector workers experienced a more modest rise of 4.7%. Currently, the inflation rate is at 2.5%, although forecasts suggest it will increase further due to higher energy and water bills.
Yael Selfin, chief economist at KPMG UK, anticipates that wage growth could experience a “steady downward trend” in upcoming months. Some economists believe that a slight rise in private sector wagesclosely watched by the Bank of England when considering interest rate decisionswill not prompt changes to its approach toward reducing borrowing costs. Recently, the Bank cut interest rates from 4.75% to 4.5%.
Rob Wood, from Pantheon Macroeconomics, stated that rate setters will remain cautious about further cuts following these wage growth figures. Companies have indicated plans for job reductions as employment costs rise ahead of April’s changes in National Insurance payments.
The hospitality and retail sectors are particularly vulnerable to upcoming cost hikes due to their higher proportion of lower-wage workers. Jane Gratton, deputy director of Public Policy at the British Chambers of Commerce, highlighted that businesses must manage additional costs without damaging employment or investment opportunities.
Starting April 1st, employers will pay National Insurance at a rate of 15% on salaries above 5,000 instead of the current 13.8% for salaries over 9,100. Despite repeated assurances from the Treasury that its budget measures aim to provide stability necessary for business investment and growth, concerns persist about potential impacts on UK economic growth.
According to a recent survey of UK employers, firms are prepared to raise prices to cover increased costs. This could lead to further inflation in coming months and put more pressure on household budgets. Additionally, the ONS noted that total estimated vacancies had decreased by 110,000 (or 11.8%) from a year ago but still remained above pre-Covid levels.
Chris Eldridge, chief executive of UK, Ireland and North America at recruitment firm Robert Walters, expressed caution about the jobs market in early 2025, particularly regarding National Insurance changes coming into effect towards March and pending developments with the Employment Rights Bill. “It’ll be a case of ‘wait and see’ what happens,” he added.
