UK Pay Growth Hits Eight-Month High, Employment Rises
UK wage growth surged to an eight-month high in the final quarter of 2024, defying expectations of a slowdown amid the Labour government's payroll tax hike.
According to the Office for National Statistics (ONS), wages excluding bonuses rose by 5.9% year-on-year in Q4 2024, up from 5.6% in the previous quarter and in line with economists' forecasts.
The jobs market also remained resilient, with the number of payrolled employees increasing by 21,000 in January, following Chancellor Rachel Reeves's payroll tax increase and minimum wage hike in October. A drop of 30,000 was expected for January, and the decline in December was smaller than previously estimated.
Unemployment remained stable at 4.4%, while job vacancies rose slightly. The figures suggest that the UK labor market remains tight despite the rise in employment costs.
Bank of England (BOE) officials will likely remain cautious as they weigh the implications of these data points, particularly with respect to sticky price pressures and a resilient labor market.
However, official data yet to show a marked deterioration in the job market, with redundancies remaining low.
Private-sector wage growth accelerated to 6.2%, slightly below the BOE's forecast of 6.3%. The figures come ahead of data expected to show inflation rising to 2.8% in January, its highest level in 10 months.
The BOE has warned of "gradual and careful" rate cuts due to persistent wage growth and the expected resurgence in inflation. The central bank is monitoring businesses' reactions to the increase in payroll taxes, which could either lead to higher prices or reduced wage growth and job cuts.
Business surveys indicate that pay growth is expected to moderate slightly to around 4% in 2025, though officials consider this level still too high to sustainably maintain a 2% inflation target.
The ONS is developing a new survey to better assess the tightness of the jobs market, but a full transition may take until 2027.