Wage growth slows to lowest level in more than a year – ONS

UK wage growth has slowed to its lowest level for more than a year while vacancies also fell back once again as Britain’s jobs market cools further, according to official figures.

The Office for National Statistics (ONS) said average regular pay, excluding bonuses, fell to 6.2% in the quarter to December, down from an upwardly revised 6.7% in the three months to November.

This was the slowest growth seen since the three months to October 2022.

But when taking Consumer Prices Index (CPI) inflation into account, real regular wages rose by 1.9% – a high since summer 2019, excluding the pandemic-skewed years.

Pay growth v inflation
(PA Graphics)

This is thanks to inflation having fallen back sharply from the 41-year high of 11.1% seen in October 2022.

Vacancies also fell for the 19th straight month, down 26,000 to 932,000 in the three months to January, in a record run of falls, though the decline was the smallest for a year-and-a-half.

In a sign that the jobs market as a whole remains largely resilient, the unemployment rate fell to 3.8% in the final three months of 2023, down from 3.9% in the three months to November and the lowest level since November to January 2023.

But the ONS cautioned that the unemployment rate should be “treated with additional caution” as it continues to overhaul its Labour Force Survey due to low response rates.

The data also showed inactivity remaining at 21.9% in the three months to December, having last month seen big upward revisions dating back to at least April to June 2023 as the UK struggles with high levels of those off work due to long-term sickness.

More timely data estimated that the number of workers on payrolls rose by 48,000 between December and January to 30.4 million, though this is subject to revision.

Liz McKeown, director of economic statistics at the ONS, said: “It is clear that growth in employment has slowed over the past year.

“Over the same period the proportion of people neither working nor looking for work has risen, with historically high numbers of people saying they are long-term sick.

UK unemployment rate
(PA Graphics)

“Job vacancies fell again, for the 19th consecutive month. However, there are signs this trend may now be slowing.

“In cash terms, earnings are growing more slowly than in recent months, but in real terms they remain positive, thanks to falling inflation.”

Chancellor Jeremy Hunt insisted it was “good news” that real wages continue to rise, but admitted the “job isn’t done”.

He said: “It’s good news that real wages are on the up for the sixth month in a row and unemployment remains low, but the job isn’t 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 with it.”

There have been fears that a robust employment market would stay the Bank of England’s hand and delay interest rate cuts.

However, Samuel Tombs at Pantheon Macroeconomics warned that the official unemployment figures did not give an accurate picture of the UK’s jobs market.

He said: “The official unemployment rate gives a misleading impression of labour market tightness and we think the (Bank of England’s) Monetary Policy Committee will place less weight than usual on it.”

He added that a “wide range of surveys point to a fundamental slowdown in wage growth over the course of 2024”.

“The path to lower interest rates, therefore, remains clear, though it hangs in the balance whether the first cut will come before the end of the second quarter,” said Mr Tombs.