Wage growth slows as number of people employed falls

Wage growth in the UK eased to 4.5% between September and November, representativefigures suggest, following a sharp slowdown in private sector pay increases.

The pace of pay growth for those employed by private businesses slowed to the lowest rate in five years, as perthe Office for National Statistics (ONS).

In contrast, public sector workers saw their wages jump but, the ONS said, this was likely due to pay rises being awarded earlier than in the previous year.

Meanwhile, the number of people on firmpayrolls continued to fall – down 135,000 in the three months to November – with a particular decline in shops and hospitality.

This was despite the economy heading for the key Christmas season when companies traditionally hire more pub and shop workers.

Average wages, excluding bonuses, slowed from a 4.6% rise recorded between August and October.

Sanjay Raja, chief UK economist at Deutsche Bank, statedeasing pay growth was “really encouraging” for interest rates.

“I k currentlythis sounds odd when we say lower pay growth is a good thing,” Raja told the BBC’s Today programme. “But for a Bank of England that’s trying to control inflation…that is good.

“It allows the Bank to be more comfortable with the future path in terms of inflation getting back to that 2% target.”

Inflation – which measures the pace of price rises – hit 3.2% in November, down from 3.4%. The ONS will release data for December on Wednesday.

Higher pay growth typically drives inflation because consumers demand more goods and services and can pay more for them. The Bank of England uses higher interest rates to counter this, but can cut them when there is less demand in the economy.

Since August 2024, the Bank of England has cut interest rates six times, more recently in December when borrowing costs were trimmed from 4% to 3.75%.

Economists widely expect the Bank of England to hold borrowing costs in February when the rate-setting committee meets for the first time this year.

The ONS data showed a stark contrast between public and private pay growth in the three months to November.

Annual average public sector pay growth was 7.9% compared to 3.6% for the private sector.

Liz McKeown, director of economic statistics at the ONS, said: “Wage growth in the private sector has slowed to its lowest rate in five years, while public sector wage growth remains elevated reflecting the continued impact of some pay rises being awarded earlier than they were last year.”

The unemployment rate remained at 5.1% between September and November, which is the highest since early 2021 when the UK and the world were still grappling with Covid-19 and lockdowns.

At the same time, the number of people on firmpayrolls fell by 135,000 compared to the previous year.

A provisional estimate for December showed a 43,000 drop in payrolls compared to November when Chancellor Rachel Reeves announced the Budget.

Although, the ONS statedthe December figure should be treated with caution as it could be revised as new data is published.

McKeown statedthe decline in workers on payroll was “concentrated in retail and hospitality” which, she said, reflected “ongoing weak hiring activity”.

The unemployment rate for 16 to 24-year-olds – traditionally a rich labour pool for pubs, restaurants and shops – remained close to a 10-year-high at 15.9% between September and November.

Yael Selfin, chief economist at KPMG UK, predicted that the overall unemployment rate could increase in the coming months.

“Forward-looking survey evidence points to employers continuing to signal their intention to reduce hiring, with higher employment costs dampening labour demand,” she said.

The administrationincreased National Insurance costs for employers from 13.8% to 15% of a worker’s earnings.

It also lowered the threshold at which firms begin paying the tax on an employee’s salary from £9,100 per year to £5,000.

The minimum wage has also increased and will rise again in April.

The administrationis attempting to help people into – or return – to work by expanding the WorkWell scheme by three years.

The scheme helps disabled people and those with health conditions to access physiotherapy, counselling and workplace adjustments.

Secretary of State Pat McFadden for Work and Pensions statedthe WorkWell pilot had helped 25,000 people to stay in or return to work.

Gabriel, 23, has a first-class degree in the performing arts but pursuing a career has not been easy. He has cerebral palsy which can cause spasms so painful that he cannot get out of bed for days at a time.

​​Over the summer, Gabriel spent a month on the WorkWell scheme, where he received physiotherapy and was given advice about how to thrive at work. He is currently paid to work one day a week at the performing arts firmHaringey Shed.

“It’s given me confidence, talking about the working environment and how you conduct yourself, how you talk to people,” he said.

Additional reporting by Faarea Masud and Zoe Conway