Wage growth in Britain has slowed as the jobs market remains cold, but continues to outpace inflation. (Jeff Gilbert)
Wage growth in Britain has fallen to its lowest level in more than a year but is still outpacing rising prices.
According to the Office for National Statistics (ONS), wages, excluding bonuses, rose 6.2% in the last three months of 2023 compared to the same period a year earlier. After taking inflation into account, wages increased by 1.9%.
Salary increases including bonuses increased by 5.8%. This was down from the summer peak of 8.5%, but the reading was higher than the city expected.
The figures could be a cause for concern for the Bank of England, which is keeping a close eye on wage growth, having previously identified it as an inflationary concern. Inflation is currently at 4%.
However, the data also showed that wage growth slowed at the end of last year to the weakest level since October 2022.
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Alice Hain, personal finance analyst at investment platform Best Invest, warned that British households will continue to be hit by the cost of living.
He said: “With pay growth slowing, the UK potentially heading into recession territory in the last quarter of last year and the recruitment market continuing to cool, households will not yet see an end to their cost of living challenges.” .
“Wage increases are likely to be subdued this year as businesses attempt to keep costs down and protect profits and some people may find themselves without a job if employers decide to make redundancies.”
But the statistics watchdog said it could not guarantee the reliability of the jobs market data.
The Office for Statistics Regulation suspended its Labor Force Survey in the autumn due to falling response rates. Its fully updated survey will not be available until September.
PwC UK economist Jake Finney said it was good news that wages are now rising in real terms, but stronger-than-expected wage growth could mean an interest rate cut is less likely:
“The latest data shows the UK has regained its sweet spot, with vacancies reducing the heat in the labor market while unemployment remains relatively stable. This view is supported by nominal wage growth data, which continues to moderate.
“However, a concern for the Bank of England will be whether the labor market has not cooled sufficiently to achieve a sustainable return to the 2% inflation target. This remains one of the major obstacles to the base rate cut in May, which the market is currently expecting.
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“More positively, employees will welcome the fact that wages are now rising in real terms. With inflation declining at a faster pace than wage growth, workers are likely to see real-term wage growth through most of 2024.
The jobs report also showed that the number of salaried workers in the UK increased by 31,000 between November and December 2023, and by 401,000 over the year.
The unemployment rate fell to 3.8%, a rate last seen a year earlier, in October to December 2022.
The employment rate rose to 75%, but the ONS warned that employment growth has slowed.
Vacancies also fell for the 19th consecutive month, falling by a record 26,000 to 932,000 in the three months to January, although the decline was the smallest in a year and a half.
Chancellor Jeremy Hunt said: “It is good news that real wages are rising for the sixth consecutive month and unemployment remains low, but the job is not done.
“Our tax cuts are part of a plan to get people back to work so we can grow the economy – but we must stick to it.”
WATCH: Wages rose more than expected – unemployment rate declined slightly
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