Wage growth has slowed due to decline in the number of people employed

Pay growth in the UK slowed to 4.5% between September and November following a sharp slowdown in private sector pay growth, official data showed.

Average wages, excluding bonuses, slowed from the 4.6% increase recorded between August and October.

The pace of wage growth for people working in private businesses has fallen to the slowest in five years, according to the Office for National Statistics (ONS).

In contrast, public sector workers saw their wages rise, but, the ONS said, this was likely due to pay rises being given earlier than last year.

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

It came as the economy was heading towards the key Christmas season when companies traditionally employ more pub and shop staff.

Average wages, excluding bonuses,

slowed from the 4.6% increase recorded between August and October.

Sanjay Raja, chief UK economist at Deutsche Bank, said the easing of wage growth was “really encouraging” for interest rates.

“I know it sounds strange when we say low pay raises are a good thing,” King said on the BBC’s Today program. “But for the Bank of England that is trying to control inflation… it is good.

“This allows the bank to be more comfortable about the future path in terms of inflation returning to its 2% target.”

Inflation – which measures the pace of price increases – eased to 3.2% in November from 3.4%. The ONS will release December data on Wednesday.

Higher wage growth generally increases 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 if there is less demand in the economy.

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

When the rate-setting committee meets for the first time this year in February, economists widely expect the Bank of England to cap borrowing costs.

ONS data showed a wide gap between public and private wage growth in the three months to November.

On average, the public sector’s annual wage growth was 7.9%, while the private sector’s was 3.6%.

Liz McKeown, director of economic statistics at the ONS, said: “Private sector pay growth has reached its lowest rate in five years, while pay growth in the public sector remains high, reflecting the continuing impact of some pay rises given earlier than last year.”

The unemployment rate stood at 5.1% between September and November, the highest since the start of 2021 when Britain and the world were still grappling with Covid-19 and lockdowns.

At the same time, the number of people on the company’s payroll decreased by 135,000 compared to the previous year.

A provisional estimate for December showed a decline of 43,000 in payrolls compared to November, when Chancellor Rachel Reeves announced the budget.

However, the ONS said the December figure should be taken with caution as it could be revised as new data is published.

McCain stated that “ongoing weak hiring activity” reflected the “concentration” of the decline in payroll workers in the retail and hospitality sectors.

The unemployment rate for 16–24-year-olds—traditionally a prosperous labour pool for pubs, restaurants, and shops— hovered near a 10-year high of 15.9% between September and November.

KPMG UK chief economist Yael Selfin predicted the overall unemployment rate could rise in the coming months.

“Forward-looking survey evidence points to employers continuing to signal their intention to cut hiring as higher employment costs reduce labour demand,” he said.

The government increased the National Insurance cost for employers from 13.8% to 15% of employee earnings.

It also reduced the threshold at which companies must pay tax on an employee’s wages from £9,100 to £5,000 per year.

The minimum wage has also increased and is set to rise again in April.

The government is attempting to help people transition to or return to work by extending the WorkWell scheme for three years.

The scheme helps people with disabilities and health problems access physiotherapy, counselling, and workplace adjustments.

Secretary of State for Work and Pensions Pat McFadden said the WorkWell pilot had helped 25,000 people stay or return to work.

Gabriel, 23, has a first-class degree in performing arts but building a career has not been straightforward. He has cerebral palsy, which can cause spasms to be so painful that he can’t get out of bed for days.

During the summer, Gabriel spent a month on the WorkWell scheme, where he was given physiotherapy and advice on how to progress at work. He is currently paid to work one day a week at performing arts company Haringey Shed.

“Talking about the work environment and how you conduct yourself, how you talk to people has given me confidence,” she said.

Additional reporting by Faria Masoud and Zoe Conway