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British wage growth slowed in the three months to November as employers cut workforces in the run-up to the Budget, official data showed that will help reassure the Bank of England that inflationary pressures are easing.
The 4.5 percent annual growth in average weekly earnings, excluding bonuses, was in line with analyst expectations and down from 4.6 percent in the three months to October.
Private sector wage growth, which BoE policymakers say is a key indicator of underlying inflationary pressures in the economy, slowed more sharply in the three months to November to 3.6 percent excluding bonuses, compared with 3.9 percent the month before.
Public sector wage growth was higher at 7.8 percent, partly because awards were made earlier this year rather than in 2024.
The unemployment rate remained at 5.1 percent, hovering at its highest level since early 2021, after a long period of weak hiring.
The Office for National Statistics said on Tuesday that payroll employment stood at 155,000, down 0.5 percent from a year earlier, in the three months to November. The dismissal rate increased by 1.1 percentage points to 4.9 percent.
Preliminary figures show a further decline of 43,000 or 0.1 percent in employment in December, following Chancellor Rachel Reeves’ tax hike budget, although these figures are preliminary and likely to be revised.
However, evidence that workers are losing bargaining power may not be enough to convince the Monetary Policy Committee to cut interest rates from the current level of 3.75 percent at its next meeting in February.
Ashley Webb of the consultancy Capital Economics said that with wage growth relatively stable despite the sharper decline in private sector profits, “the next policy meeting in February may be too early for another rate cut.”
He added that this could change if inflation figures for Wednesday turned out to be much weaker than expected, leaving the door ajar for a cut.
Yael Selfin, chief economist at KPMG, also said the more hawkish MPC members are “likely to argue that there is no immediate sign of a significant deterioration in the labor market,” although the figures “should create room for rate cuts in subsequent meetings.”
In a more positive sign, the long-term decline in vacancies has leveled off, with the number of vacancies rising by 10,000 in the three months to December compared to the previous quarter.
Employer cuts are concentrated in sectors such as retail and hospitality, which employ large numbers of young people and were hardest hit by last year’s increases in national insurance contributions.
A rise in youth unemployment has prompted ministers to focus on helping those struggling to enter the labor market, launching a study into the causes of young people’s inactivity and trialling a new scheme offering state-funded internships for 18- to 21-year-old benefit recipients.
The Department for Work and Pensions said on Tuesday it planned to open applications for employers to provide these placements, with an initial rollout to 1,000 young people before national expansion.
Work and Pensions Secretary Pat McFadden said Tuesday’s data showed “why we need to go further, especially for our young people”.
He urged employers to “come forward” and join companies such as JD Sports and Tesco who had already committed to the scheme.
The pound rose 0.4 percent against a broadly weaker dollar at $1.348 after the data.
Additional reporting by Ian Smith
