UK pay growth has accelerated at the end of last year, providing relief to workers and potential inflation concerns for the Bank of England. The latest employment data shows that total pay rose by 6% per year in the October-December quarter, up from 4.4% in July-September. Regular pay (excluding bonuses) also rose by 5.9% in the same quarter. Adjusted for inflation, real wages rose by 3.4% annually. This increase in pay is likely to cause concerns at the Bank of England, which recently cut interest rates, as some policymakers worry about inflationary pressures.
Despite the increase in pay, the UK labour market also saw rises in both employment and unemployment in the quarter, with the number of economically inactive individuals decreasing slightly. The UK employment rate for people aged 16-64 was estimated at 74.9%, while the unemployment rate for individuals aged 16 and over was 4.4%. The economic inactivity rate for people aged 16-64 was estimated at 21.5%, with the Claimant Count for January 2025 increasing to 1.750 million.
The UK’s labour market stability and pay growth have implications for interest rate decisions by the Bank of England. Some experts believe that the Bank will need to take a gradual and careful approach to rate cuts this year, with wage growth potentially influencing the timing of future rate adjustments. Additionally, ongoing declines in job vacancies highlight the need for government action to support businesses and stimulate job creation in the face of mounting pressures.
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