UK wage growth remains hot as Bank of England set to decide on interest rates
Wage growth has continued to soar, new figures have revealed.
The Office for National Statistics (ONS) said that annual regular pay, excluding bonuses, grew 5.9 per cent between November 2024 and January 2025.
Total pay growth, which includes bonuses, increased by 5.8 per cent.
“Overall pay growth remains relatively strong, with pay growth high in both the public and private sectors, despite the latter slowing slightly in the latest period,” ONS director Liz Keown said.
Unemployment remained stagnant at 4.4 per cent.
Private sector earnings for the private sector rose by 6.1 per cent, in contrast to 5.3 per cent for the public sector.
Work and Pensions Secretary Liz Kendall said the latest data showed the government faced an uphill battle to get people back into work.
“Today’s figures demonstrate the scale of the challenge we’re still facing to get Britain working again.
“The reforms I have announced will ensure everyone who can work gets the active support they need, including through an extra £1 billion for personalised health, skills and employment support for sick and disabled people.”
Paige Tao, economist at PwC UK, said: “As with the recent GDP figures, the latest labour market data shows the UK economy remains in ‘wait-and-see’ mode.
“These figures bring no big surprises, reflecting the ongoing cautious approach from employers in the face of economic uncertainty.
“Today’s release provides little respite for the Chancellor as she faces growing pressure ahead of her Spring Statement. Confidence needs a boost, and businesses will be watching carefully, with hiring and investment seemingly still on ice.”
Bank of England to decide on interest rates
The figures were published ahead of the Bank of England’s latest interest rate decision. Later on Thursday, the central bank will publish its latest interest rate decision, with economists widely expecting the Bank of England to hold the base rate at 4.5 per cent.
The Bank of England said in February that it expected inflation to rise as high as 3.7 this year, nearly double the official target of two per cent.
Lindsay James, investment strategist at Quilter Investors said: “The Bank of England will have a rather treacherous path to navigate in the coming months. At midday today, the Bank will announce its latest monetary policy decision and is widely expected to hold rates at 4.5 per cent.
“With inflation seeing a surprise jump to three per cent in January, the Bank is likely to hold fire on any further cuts for now until it is confident inflation is heading back in the right direction.
“Today’s wage growth figures will also have done little to quell its fears.”
Ruth Gregory, a UK economist at Capital Economics, said that soaring pay growth was likely to make rate-setters more nervous about price hikes in the economy.
“With wage growth still sticky that will increase the Bank’s concerns about a resurgence in inflation and keep it on its “gradual and careful” interest rate cutting path,” she said.
Surveys have also pointed to a cooling labour market, with research last month by KPMG and the Recruitment and Employment Confederation (REC) showing a decline in vacancies.
Suren Thiru, a director at ICAEW, said the UK’s jobs market may soon “slide into choppier waters” when taxes bite next month – but added that the latest figures suggested that recruitment was already falling flat.
“These figures suggest that the UK’s jobs market had little momentum even before next month’s twin hit of rising National Insurance and National Living Wage costs,” he said.
Jobs market gears up for tax hikes
Businesses are making urgent plans ahead of Chancellor Rachel Reeves’ £40bn tax raid in April.
Analysts have warned that the tax hikes will exacerbate inflation as firms will likely pass on costs to consumers.
Meanwhile, the Organisation for Economic Co-operation and Development (OECD) cited concerns about inflation as a reason for cutting its UK growth forecast.
Their data has come under fire after the Financial Times reported earlier this month that the sample sizes of employment data “collapsed to only five individuals” in October 2023.
The statistics body has also revised important data in recent years as it also revealed that its new labour force survey may not be released until 2027 due to falling response rates.