Wage Growth Slows as Employment Numbers Decline
– Wage growth in the UK has slowed to 4.5% between September and November, according to official figures, reflecting a significant deceleration in private sector pay increases.
– Private sector pay growth reached its lowest rate in five years, as reported by the Office for National Statistics (ONS).
– In contrast, public sector workers experienced wage increases, attributed to raises being awarded earlier than in the previous year.
Decline in Employment Numbers
– The number of individuals on company payrolls fell by 135,000 in the three months leading to November, particularly affecting the retail and hospitality sectors. This drop is noteworthy as it occurs during the typical seasonal hiring period leading up to Christmas.
– Average wages, excluding bonuses, decreased from a 4.6% rise reported from August to October.
Sanjay Raja, Chief UK Economist at Deutsche Bank, noted that easing wage growth is really encouraging for interest rates, explaining that it allows the Bank of England to pursue its goal of lowering inflation to the 2% target. He stated, For a Bank of England that’s trying to control inflation… that is good.
– November saw inflation at 3.2%, down from 3.4%. The ONS is set to release December data soon.
– Higher wage growth can lead to increased inflation as consumers typically demand more goods and services, prompting the Bank of England to raise interest rates to mitigate this.
Interest Rate Implications
– Since August 2024, the Bank of England has reduced interest rates six times, with the latest cut from 4% to 3.75% occurring in December.
– Economists anticipate that the Bank will maintain these borrowing costs in February during the first rate-setting committee meeting of the year.
Public vs. Private Sector Wage Growth
– The ONS data highlighted a stark contrast between public and private sector wage growth.
– Annual average public sector pay growth stood at 7.9% compared to just 3.6% for the private sector.
– Liz McKeown, Director of Economic Statistics at the ONS, commented, Wage growth in the private sector has slowed to its lowest rate in five years, while public sector wage growth remains elevated, reflecting the effects of earlier pay adjustments.
Unemployment Trends
– The unemployment rate held steady at 5.1% from September to November, marking the highest level since early 2021 when the UK faced the impacts of Covid-19 lockdowns.
– In comparison to the previous year, payroll numbers showed a decline of 135,000 workers. A preliminary estimate for December indicated a further drop of 43,000 payrolls compared to November.
– The ONS cautioned that the December figures are subject to future revisions.
McKeown stated that the decrease in company payrolls was concentrated in the retail and hospitality sectors, indicative of ongoing weak hiring trends.
– The unemployment rate among 16 to 24-year-olds, a significant labor pool for many shops and restaurants, reached a near 10-year high at 15.9% during this same period.
– Yael Selfin, Chief Economist at KPMG UK, forecasts a potential increase in the overall unemployment rate in the coming months, driven by employers signaling reduced hiring intentions due to rising employment costs.
Government Initiatives
To alleviate these challenges, the government adjusted National Insurance rates, increasing costs for employers from 13.8% to 15% of workers’ earnings. Additionally, the threshold for this tax was lowered from £9,100 to £5,000, while the minimum wage is set for another increase in April.
– The government is also extending the WorkWell scheme by three years to support individuals returning to work or entering the job market.
Gabriel, a 23-year-old participant in the WorkWell scheme, expressed how the initiative bolstered his confidence, facilitating his entry into the workplace despite challenges posed by cerebral palsy. Thanks to the program, he has secured a part-time position at Haringey Shed, a performing arts company.
With these developments, it becomes clear that while wage growth slows, the government and economic experts remain focused on navigating the challenges ahead, aiming to stabilize both employment and inflation rates.