Data from the Office for National Statistics showed that pay growth among workers employed by private businesses dropped to its lowest level in five years. In contrast, public sector wages rose more strongly, although the ONS said this was largely due to pay awards being made earlier than they were the previous year.
At the same time, the number of people on company payrolls declined by 135,000 in the three months to November, with the steepest falls recorded in retail and hospitality. The drop came despite the approach of the Christmas period, when businesses typically increase hiring in shops, pubs and restaurants.
Average wages excluding bonuses slowed from a 4.6% increase recorded in the three months to October, highlighting a broader cooling in earnings growth.
Sanjay Raja, chief UK economist at Deutsche Bank, said the slowdown in pay growth was a positive signal for interest rate policy. Speaking on the BBC’s Today programme, he said lower wage growth would help the Bank of England in its efforts to bring inflation back to its 2% target by easing pressure on prices.
Inflation stood at 3.2% in November, down from 3.4% the previous month, with December figures due to be released shortly. Strong wage growth can contribute to inflation as higher earnings allow consumers to spend more, increasing demand for goods and services. The Bank of England typically raises interest rates to curb this effect but can lower borrowing costs when demand weakens.
Since August 2024, the Bank has cut interest rates six times, most recently in December when the main rate was reduced from 4% to 3.75%. Economists expect rates to be held steady when the Bank’s rate-setting committee meets for the first time this year.
ONS figures revealed a clear divide between public and private sector pay. Annual public sector wage growth averaged 7.9% over the period, compared with 3.6% in the private sector. Liz McKeown, director of economic statistics at the ONS, said private sector wage growth had slowed to its weakest pace in five years, while public sector pay remained elevated due to the timing of recent pay settlements.
The unemployment rate held at 5.1% between September and November, its highest level since early 2021, when the UK was still emerging from pandemic-related restrictions. Alongside this, payroll employment continued to decline year on year.
A provisional estimate suggested payroll numbers fell by a further 43,000 in December compared with November, when the chancellor announced the Budget. The ONS cautioned that the figure could be revised as more data becomes available.
McKeown said the fall in payroll employment was concentrated in retail and hospitality, reflecting weak hiring activity across those sectors. Unemployment among people aged 16 to 24 remained close to a decade high at 15.9%, underscoring the pressure facing younger workers who often rely on jobs in shops, bars and restaurants.
Yael Selfin, chief economist at KPMG UK, said the overall unemployment rate was likely to rise further in the coming months. She pointed to survey evidence showing employers planning to reduce hiring, with higher employment costs weighing on labour demand.
The government recently increased National Insurance contributions paid by employers and lowered the earnings threshold at which the tax applies. The minimum wage has also risen and is set to increase again in April.
In response, the government has extended the WorkWell scheme by three years in an effort to help people enter or return to employment. The programme provides support such as physiotherapy, counselling and workplace adjustments for people with disabilities or health conditions.
Work and Pensions Secretary Pat McFadden said the pilot scheme had already helped 25,000 people remain in work or rejoin the workforce.
One participant, Gabriel, a 23-year-old graduate with cerebral palsy, said the scheme helped him gain confidence in the workplace. After receiving physiotherapy and advice on managing work environments, he now works one day a week at a performing arts company.
He said the experience had helped him better understand professional expectations and communicate more effectively at work.
Additional reporting was provided by Faarea Masud and Zoe Conway.
Wage growth in the UK slowed to 4.5% between September and November, according to official figures, as private sector pay increases eased sharply and the number of people in employment continued to fall.
Data from the Office for National Statistics showed that pay growth among workers employed by private businesses dropped to its lowest level in five years. In contrast, public sector wages rose more strongly, although the ONS said this was largely due to pay awards being made earlier than they were the previous year.
At the same time, the number of people on company payrolls declined by 135,000 in the three months to November, with the steepest falls recorded in retail and hospitality. The drop came despite the approach of the Christmas period, when businesses typically increase hiring in shops, pubs and restaurants.
Average wages excluding bonuses slowed from a 4.6% increase recorded in the three months to October, highlighting a broader cooling in earnings growth.
Sanjay Raja, chief UK economist at Deutsche Bank, said the slowdown in pay growth was a positive signal for interest rate policy. Speaking on the BBC’s Today programme, he said lower wage growth would help the Bank of England in its efforts to bring inflation back to its 2% target by easing pressure on prices.
Inflation stood at 3.2% in November, down from 3.4% the previous month, with December figures due to be released shortly. Strong wage growth can contribute to inflation as higher earnings allow consumers to spend more, increasing demand for goods and services. The Bank of England typically raises interest rates to curb this effect but can lower borrowing costs when demand weakens.
Since August 2024, the Bank has cut interest rates six times, most recently in December when the main rate was reduced from 4% to 3.75%. Economists expect rates to be held steady when the Bank’s rate-setting committee meets for the first time this year.
ONS figures revealed a clear divide between public and private sector pay. Annual public sector wage growth averaged 7.9% over the period, compared with 3.6% in the private sector. Liz McKeown, director of economic statistics at the ONS, said private sector wage growth had slowed to its weakest pace in five years, while public sector pay remained elevated due to the timing of recent pay settlements.
The unemployment rate held at 5.1% between September and November, its highest level since early 2021, when the UK was still emerging from pandemic-related restrictions. Alongside this, payroll employment continued to decline year on year.
A provisional estimate suggested payroll numbers fell by a further 43,000 in December compared with November, when the chancellor announced the Budget. The ONS cautioned that the figure could be revised as more data becomes available.
McKeown said the fall in payroll employment was concentrated in retail and hospitality, reflecting weak hiring activity across those sectors. Unemployment among people aged 16 to 24 remained close to a decade high at 15.9%, underscoring the pressure facing younger workers who often rely on jobs in shops, bars and restaurants.
Yael Selfin, chief economist at KPMG UK, said the overall unemployment rate was likely to rise further in the coming months. She pointed to survey evidence showing employers planning to reduce hiring, with higher employment costs weighing on labour demand.
The government recently increased National Insurance contributions paid by employers and lowered the earnings threshold at which the tax applies. The minimum wage has also risen and is set to increase again in April.
In response, the government has extended the WorkWell scheme by three years in an effort to help people enter or return to employment. The programme provides support such as physiotherapy, counselling and workplace adjustments for people with disabilities or health conditions.
Work and Pensions Secretary Pat McFadden said the pilot scheme had already helped 25,000 people remain in work or rejoin the workforce.
One participant, Gabriel, a 23-year-old graduate with cerebral palsy, said the scheme helped him gain confidence in the workplace. After receiving physiotherapy and advice on managing work environments, he now works one day a week at a performing arts company.
He said the experience had helped him better understand professional expectations and communicate more effectively at work.
