UK workers saw a significant increase in their pay during the final quarter of last year, while unemployment remained steady despite concerns raised by businesses that the Chancellor’s autumn budget could lead to job cuts.
Recent data from the Office for National Statistics (ONS) revealed that total average weekly earnings grew by 6% in the three months leading up to December, surpassing both the previous month’s growth of 5.6% and the 5.9% forecast by economists.
When excluding bonuses, regular pay growth accelerated from 5.6% to 5.9%, matching expectations and presenting a challenge for the Bank of England as it weighs decisions regarding interest rates. Following the release of the data, the pound strengthened against the US dollar.
Unemployment held steady at 4.4%, defying predictions of a slight rise to 4.5%, while the number of employees on company payrolls remained largely unchanged in the final quarter of the year.
Job vacancies saw a small increase from 818,000 in December to 819,000 in January, continuing a downward trend from 2022 but still higher than pre-pandemic levels.
Despite warnings from business leaders that the autumn budget would lead to significant job cuts, particularly following surveys indicating that employers were shedding jobs at the fastest pace since the 2009 financial crisis (excluding the COVID-19 period), the figures indicate that the job market is performing better than anticipated. Furthermore, the UK economy narrowly avoided a recession in late 2024, according to recent reports.
Economists, however, suggested that the jobs market is cooling, though not as rapidly as expected. The number of workers on payrolls decreased by 14,000 in December, although this has remained relatively stable since May 2024.
Rob Wood, chief UK economist at Pantheon Macroeconomics, noted, “Employment has stalled rather than collapsed. This is not an ideal situation given the pressures of payroll tax hikes, global uncertainty, and weak economic growth, but the jobs market is holding up better than some pessimistic business surveys suggested.”
Business leaders have raised alarms over upcoming changes in taxes and wages, with a £25 billion increase in employers’ national insurance contributions and a 6.7% rise in the minimum wage set to take effect in April. Surveys show that companies are preparing for widespread redundancies, as business confidence has sharply declined.
Despite no significant signs of job cuts in the last quarter of 2024, the ONS has warned about the quality of the UK’s jobs market data, leading to concerns among experts who argue that policymakers may be making decisions based on potentially unreliable figures.
Earlier this year, the Bank of England reduced its growth forecast for the UK economy and warned that rising inflation would place additional pressure on households. It also lowered interest rates from 4.75% to 4.5%.
The continued strength in the jobs market and persistent wage growth is a growing concern for the central bank, as higher earnings could contribute to rising inflation. In real terms, annual pay growth, adjusted for inflation, stood at 3.4%, the highest since 2021.
Sarah Coles, head of personal finance at Hargreaves Lansdown, cautioned, “While wages have outpaced inflation, easing the strain on household budgets, we must remain vigilant as wage hikes could potentially fuel inflation down the line.”
Figures released later this week are expected to show a rise in inflation from 2.5% in December to 2.8% in January, partly driven by increasing energy costs. The Bank of England has projected inflation to peak at 3.7% by the autumn, nearly double its 2% target.
In response to the data, Liz Kendall, the Work and Pensions Secretary, said, “Wages have continued to grow since July, putting much-needed money back into people’s pockets. However, we must recognize that too many individuals, including those who are sick or disabled, are still excluded from the workforce. Instead of dismissing them, we must enhance our support to help everyone access opportunities.”
For more updates on the UK economy and job market trends, visit London Pulse News.
