UK pay growth accelerated to 5.2% in October, under pressure from the Bank of England to resist calls for lower interest rates when policymakers meet later this week.
The Office for National Statistics (ONS) said the annual increase in average earnings for employees follows a significant rise in wages paid to skilled workers in the manufacturing sector.
Pay rose 4.4% including bonuses and 4.9% excluding bonuses in the three months to September, but both hit 5.2% in the three months to October.
The rise in wages for factory workers to 6% meant that the gap between civil servants and the private sector widened. Average annual growth in regular rents was 5.4% for the state and 4.3% for the state sector, the ONS said.
ONS director of economic statistics, Liz McKeown, said: “After slowing steadily over the year, wage growth excluding goods increased slightly in the latest period, driven by stronger growth in private wages.
“The pay increase among the bonuses increased more, but this reflects the higher figures that are affected by the one-off payments made to some public employees in 2023.”
Policymakers at the Bank of England are likely to be wary of cutting interest rates while pay growth remains strong, fearing that business will bear the brunt of the cost to consumers through higher prices.
Monica George Michail, an economist at the National Institute for Economic and Social Research, said the combination of high average wage growth and low growth meant most workers enjoyed significant real income gains, which could increase demand in stores, putting further pressure on stores. to take the price.
“However, given the slowdown in recruitment activity and rising unemployment, we expect growth to slow in the coming months, although a rise in national life expectancy in April will exert some upward pressure.
“We expect the Bank of England to cut rates gradually in 2025, as wage growth moderates and growth stabilizes.”
City naysayers were downgrading their expectations for UK interest rate cuts after the release of the ONS figures. Financial markets indicated there was only a 7% chance that the central bank would cut interest rates on Thursday, up from about 15% on Monday.
interest rates now at 4.75%they are expected to fall by about 4.1% in December 2025.
The OnS said real incomes – the difference between growth and wage rises – had risen 2.2% last year when using a price index including owner-occupier housing costs.
Early estimates of the total number of workers in November showed a fall of 35,000, but this came after a rise of 24,000 in October, indicating that the business market remained stable after Labour’s budget.
There were 818 job vacancies in September to November 2024, up from thirty in the previous three months, although still 22,000 above pre-Covid Pandemic levels. Unemployment remained flat at 4.3%.
Post Newsletter promotion
Business groups said the full impact of the budget was yet to be seen in the figures and their surveys showed employers were worried about the year ahead and holding back on hiring.
The British Chambers of Commerce said the rise in employers’ national insurance, and the increase in national living wages from next Aprilmeant firms are looking at difficult decisions.
“a lot” [firms] they say they will raise prices, recruit and invest in security and other ways to reduce their costs,” the lobby group said.
The Director of the Institute said that the right to work bill designed by Labor is another factor “decreasing hiring intentions by increasing the cost and risk of employing staff”.
Their survey suggested that employer intentions are at their lowest point since May 2020, with 43% of businesses planning to reduce their higher national insurance bills in response.
Joe Nellis, an economics professor at the Cranfield School of Management, said the lack of any significant rise in unemployment reflects a larger problem: a persistently high number of adults are classified as economically inactive.
“This number has remained well over 9 million in recent years and is more than 20% of the UK’s working population,” he said.
Liz Kendall, the work and pensions secretary, said getting people back into the workforce was a priority for the government. “Today’s figures are a stark reminder of the work that needs to be done,” he said.
Analysis of ONS data by the British Retail Consortium shows retailers employ 25,000 fewer people than they did five years ago, as the shift to online shopping and new technology have reduced the number of jobs needed in shops.