Wage growth slows as number of people employed falls

Wage growth in the UK eased to 4.5% between September and November, official figures suggest, following a sharp slowdown in private sector pay increases.

The pace of pay growth for those employed by private businesses slowed to the lowest rate in five years, according to the Office for National Statistics (ONS).

In contrast, public sector workers saw their wages jump but, the ONS said, this was likely due to pay rises being awarded earlier than in the previous year.

Meanwhile, the number of people on company payrolls continued to fall – down 135,000 in the three months to November – with a particular decline in shops and hospitality.

This was despite the economy heading for the key Christmas season when companies traditionally hire more pub and shop workers.

Average wages, excluding bonuses, slowed from a 4.6% rise recorded between August and October.

Sanjay Raja, chief UK economist at Deutsche Bank, said easing pay growth was “really encouraging” for increasing the likelihood of future interest rate cuts.

“I know this sounds odd when we say lower pay growth is a good thing,” Raja told the BBC’s Today programme. “But for a Bank of England that’s trying to control inflation…that is good.

“It allows the Bank to be more comfortable with the future path in terms of inflation getting back to that 2% target.”

Inflation – which measures the pace of price rises – hit 3.2% in November, down from 3.4%. The ONS will release data for December on Wednesday.

Higher pay growth typically drives inflation because consumers demand more goods and services and can pay more for them. The Bank of England uses higher interest rates to counter this, but can cut them when there is less demand in the economy.

Since August 2024, the Bank of England has cut interest rates six times, more recently in December when borrowing costs were trimmed from 4% to 3.75%.