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| UK pay growth rises despite firms cutting jobs after budget | |
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| Labour market figures add to dilemma for Bank of England as it considers interest rate cuts | |
| UK pay growth rose in November despite evidence of employers cutting jobs after Rachel Reeves’s tax-raising budget, underlining a dilemma for the Bank of England as it considers cutting interest rates next month. | UK pay growth rose in November despite evidence of employers cutting jobs after Rachel Reeves’s tax-raising budget, underlining a dilemma for the Bank of England as it considers cutting interest rates next month. |
| With the government under pressure on the economy, the Office for National Statistics (ONS) said annual growth in average weekly earnings rose by 5.6% in the three months to the end of November, up from 5.2% in the three months to October. | With the government under pressure on the economy, the Office for National Statistics (ONS) said annual growth in average weekly earnings rose by 5.6% in the three months to the end of November, up from 5.2% in the three months to October. |
| City economists had forecast total annual pay growth would accelerate. The reading matched estimates for total pay, but was marginally higher than expected for regular pay, excluding bonuses. | City economists had forecast total annual pay growth would accelerate. The reading matched estimates for total pay, but was marginally higher than expected for regular pay, excluding bonuses. |
| At the same time, the figures showed the UK unemployment rate for people aged 16 and over rose to 4.4% in the three months to November, up from 4.3% in the three months to October, highlighting some evidence of a cooling jobs market since the autumn budget. | At the same time, the figures showed the UK unemployment rate for people aged 16 and over rose to 4.4% in the three months to November, up from 4.3% in the three months to October, highlighting some evidence of a cooling jobs market since the autumn budget. |
| After turbulence in bond markets earlier this month, the latest snapshot will complicate the picture for the chancellor amid warnings that higher borrowing costs could require tax increases or spending cuts to avoid breaking her fiscal rules. | After turbulence in bond markets earlier this month, the latest snapshot will complicate the picture for the chancellor amid warnings that higher borrowing costs could require tax increases or spending cuts to avoid breaking her fiscal rules. |
| On Tuesday, Reeves said she would present the results of a spending review, which will set the multi-year budget plans for government departments, on 11 June. | On Tuesday, Reeves said she would present the results of a spending review, which will set the multi-year budget plans for government departments, on 11 June. |
| The UK government’s borrowing costs have risen sharply in recent months, reflecting investor fears over higher for longer inflation and central bank interest rates. | The UK government’s borrowing costs have risen sharply in recent months, reflecting investor fears over higher for longer inflation and central bank interest rates. |
| Threadneedle Street is expected to cut the base rate from the current level of 4.75% when policymakers next meet on 6 February, with financial markets reflecting an 84% chance of a reduction in borrowing costs. | Threadneedle Street is expected to cut the base rate from the current level of 4.75% when policymakers next meet on 6 February, with financial markets reflecting an 84% chance of a reduction in borrowing costs. |
| City economists said that, while robust pay growth could hold back further rate reductions, employers putting their recruitment plans on ice could have the opposite effect amid evidence of a broader slowdown in the economy. | City economists said that, while robust pay growth could hold back further rate reductions, employers putting their recruitment plans on ice could have the opposite effect amid evidence of a broader slowdown in the economy. |
| Ashley Webb, a UK economist at the consultancy Capital Economics, said: “While the further rise in regular private sector pay growth in November will cause the Bank of England some unease, it will take comfort from the continued loosening in labour market activity.” | Ashley Webb, a UK economist at the consultancy Capital Economics, said: “While the further rise in regular private sector pay growth in November will cause the Bank of England some unease, it will take comfort from the continued loosening in labour market activity.” |
| Threadneedle Street is monitoring Britain’s jobs market for evidence of inflationary pressures, amid concerns that higher pay settlements could lead companies to put up their prices to accommodate rising wage bills. | Threadneedle Street is monitoring Britain’s jobs market for evidence of inflationary pressures, amid concerns that higher pay settlements could lead companies to put up their prices to accommodate rising wage bills. |
| Several of the Bank’s policymakers warn that pay growth remains above levels considered to be consistent with its 2% inflation target. Others say generous pay deals are unlikely to persist for much longer as the recent high period of inflation fades in the rear-view mirror, and as growth in the UK economy slows. | Several of the Bank’s policymakers warn that pay growth remains above levels considered to be consistent with its 2% inflation target. Others say generous pay deals are unlikely to persist for much longer as the recent high period of inflation fades in the rear-view mirror, and as growth in the UK economy slows. |
| According to the ONS figures, private sector pay growth drove the increase in average weekly earnings, with a jump from 5.4% to 5.8%, while public sector pay growth eased from 4.2% to 4.1%. | According to the ONS figures, private sector pay growth drove the increase in average weekly earnings, with a jump from 5.4% to 5.8%, while public sector pay growth eased from 4.2% to 4.1%. |
| When inflation is taken into account, the ONS said the total 5.6% annual pay increase in the three months to November was worth 3.2%, the highest outside the pandemic since 2007. | When inflation is taken into account, the ONS said the total 5.6% annual pay increase in the three months to November was worth 3.2%, the highest outside the pandemic since 2007. |
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| Reflecting a slowdown in hiring demand after the chancellor’s October budget, data from HMRC showed the number of employees on company payrolls dropped by 47,000 in December, the biggest fall since November 2020 and after a 32,000 drop a month earlier. | Reflecting a slowdown in hiring demand after the chancellor’s October budget, data from HMRC showed the number of employees on company payrolls dropped by 47,000 in December, the biggest fall since November 2020 and after a 32,000 drop a month earlier. |
| The number of vacancies fell by 24,000, dropping for a 30th consecutive month. However, the number of job openings remains higher than before the pandemic. | The number of vacancies fell by 24,000, dropping for a 30th consecutive month. However, the number of job openings remains higher than before the pandemic. |
| Business leaders have warned that Reeves’s planned £25bn increase in employers’ national insurance contributions and 6.7% rise in the minimum wage from April could stoke inflationary pressures by forcing companies to pass on higher prices to consumers. However, the changes adding to unemployment would have the opposite effect by cooling wage growth. | Business leaders have warned that Reeves’s planned £25bn increase in employers’ national insurance contributions and 6.7% rise in the minimum wage from April could stoke inflationary pressures by forcing companies to pass on higher prices to consumers. However, the changes adding to unemployment would have the opposite effect by cooling wage growth. |
| Early estimates for December from HMRC data indicate that median monthly pay increased by 5.6%, down from 6.4% in November. | Early estimates for December from HMRC data indicate that median monthly pay increased by 5.6%, down from 6.4% in November. |
| “The full impact of the changes to national insurance and the minimum wage, announced at the budget, won’t be fully seen until later in the year. However, the warning lights on recruitment, employment and training are already flashing,” said Jane Gratton, the deputy director public policy at the British Chambers of Commerce. | “The full impact of the changes to national insurance and the minimum wage, announced at the budget, won’t be fully seen until later in the year. However, the warning lights on recruitment, employment and training are already flashing,” said Jane Gratton, the deputy director public policy at the British Chambers of Commerce. |
| Liz Kendall, the work and pensions secretary, said: “Today’s figures are more evidence that we must get Britain working, which is why this government is relentlessly focused on driving up opportunity and driving down barriers to success in every part of the countryPCJ.” | |
| The Bank has been grappling with issues over the quality of the UK’s official jobs market statistics, which experts have warned leaves policymakers “flying blind” with the prospect that decisions are being taken based on flawed data. | The Bank has been grappling with issues over the quality of the UK’s official jobs market statistics, which experts have warned leaves policymakers “flying blind” with the prospect that decisions are being taken based on flawed data. |
| The ONS last month admitted it could take until 2027 to replace its faulty labour force survey, which has suffered from low response rates and a badly handled transformation programme. | The ONS last month admitted it could take until 2027 to replace its faulty labour force survey, which has suffered from low response rates and a badly handled transformation programme. |