UK pay growth has slowed to its lowest level for more than a year but it is still outpacing rising prices.
Pay, excluding bonuses, grew by 6.2% in the last three months of 2023 compared with the same period a year before, according to the Office for National Statistics (ONS). After taking inflation into account, pay went up by 1.9%.
Pay rises including bonuses was up by 5.8%. That was down from a summer peak of 8.5% but readings are higher than the City expected.
The figures may be of concern to the Bank of England, that is keeping a close eye on wage rises, having previously identified them as an inflationary concern. Inflation currently stands at 4%.
However, the data also showed that pay growth slowed at the end of last year to the weakest level since October 2022.
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Alice Haine personal finance analyst at investment platform Best Invest, warned UK households will continue to be squeezed by the cost of living crisis.
She said: “With pay growth slowing, the UK potentially tipping into recession territory in the final quarter of last year and the hiring market continuing to cool, households won’t see an end to their cost-of-living challenges just yet.
“Salary rises are likely to be toned down this year as businesses strive to keep costs down and protect profits and some might find themselves without a job at all if employers decide to make redundancies.”
But the statistics watchdog has said it could not guarantee the reliability of jobs market data.
The Office for Statistics Regulation suspended its Labour Force Survey in the autumn because of falling response rates. Its fully updated survey will not be in place until September.
Jake Finney, economist at PwC UK, said it is good news that pay is now growing in real terms but that the higher-than-expected wage growth could mean interest rate cuts are less likely:
“The latest data suggests the UK has achieved its sweet spot, with declining vacancies taking the heat out of the labour market whilst unemployment remains relatively flat. This view is supported by the nominal pay growth data, which continues to soften.
“However, the lingering concern for the Bank of England will be that the labour market has not cooled sufficiently to achieve a sustainable return to the 2% inflation target. This remains one of the key barriers to the base rate cut in May that markets are currently expecting.
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“More positively, workers will welcome that pay is now growing in real terms. With inflation declining at a faster pace than pay growth, workers are likely to see real term pay rises throughout most of 2024.”
The jobs report also showed that the number of payrolled employees in the UK rose by 31,000 between November and December 2023, and rose by 401,000 over the year.
The unemployment rate dropped to 3.8%, a rate last seen a year earlier in October to December 2022.
The employment rate rose to 75%, but the ONS warns that employment growth has slowed.
Vacancies also fell for the 19th straight month, down 26,000 to 932,000 in the three months to January, in a record run of falls, though the decline was the smallest for a year-and-a-half.
Chancellor Jeremy Hunt said: “It’s good news that real wages are on the up for the sixth month in a row and unemployment remains low, but the job isn’t done.
“Our tax cuts are part of a plan to get people back to work so we can grow the economy – but we must stick with it.”
Watch: Wage rises higher than expected – as unemployment rate falls slightly
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