Private Sector Wage Growth at Lowest Level in Five Years
New official figures show that private sector wage growth has fallen to its lowest level in five years. In contrast, public sector wages are still increasing due to the ongoing impact of previous pay agreements.
Wage Growth Comparison
Salaries of public sector employees increased by 7.9% annually, while salaries of private sector employees increased by an average of 3.6%. The figures indicate that people are still receiving pay rises, but these are smaller than before.
Unemployment Rate
New unemployment figures show that the unemployment rate remained at 5.1% in the three months to November. This period was dominated by rumors of an impending tough Budget, according to ONS data. When Labor took office in 2024, the rate was 4.1%.
Impact on Job Market
There are still challenges to come in the job market. A further increase in unemployment is expected in the coming months as higher labor costs dampen demand for new staff. Accounting firm predictions suggest that unemployment could reach 5.3% by the end of the year or by March.
Hiring Slowdown
Employers are hiring fewer people than before, with HMRC’s December payroll figures showing 184,000 fewer people employed than in the same month in 2024. Increases in employers’ national insurance contributions and "skyrocketing" staff costs, combined with concerns over the Employment Rights Act, have made recruitment difficult and limited pay payments.
Wage Increase Slowdown
The slowdown in wage growth is likely to accelerate in the coming months as rising labor costs constrain pay deals. This will come at the expense of weaker consumer spending, a key driver of UK economic performance. Wage increases would slow even further, according to the Institute of Chartered Accountants in England and Wales.
Interest Rates
The weakening labor market is unlikely to prompt Bank of England rate-setters to make borrowing cheaper at their meeting next month. Tuesday’s numbers could be enough to hold off until April, according to economic research firm predictions.
