Pay after inflation rises at fastest rate since 2021

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Pay after inflation rises at fastest rate since 2021

*** pay after inflation has risen at its fastest rate for more than three years, driven by strong wage growth in the private sector.

Pay packets increased on average by 3.4% on the year between September and November after taking into account the impact of price rises, according to the Office for National Statistics (ONS).

Growth in private sector earnings were stronger than for public sector jobs.

Despite a risk of higher wages pushing up inflation, the Bank of England is still expected to cut interest rates next month.

Rates are currently at 4.75%, but traders have bet on a cut to 4.5% in February, after inflation, which measures the rate prices rise at over time, unexpectedly fell last month.

The Bank of England watches the pay and jobs data closely when making decisions on interest rates. The latest ONS figures estimated that average weekly earnings in the *** hit £660 in November, when inflation was 2.6% – the latest figure is 2.5%.

“Pay hasn’t put this much clear blue water between itself and inflation for around three and a half years, so the difference is palpable. It’s leaving us with more money at the end of the month,” said Sarah Coles, head of personal finance at Hargreaves Lansdown.

Ms Coles warned there was a risk rising wages could lead to higher inflation and interest rate cuts being delayed, but added “on balance, the lack of growth in the economy, and a month of falling inflation, are likely to mean a rate cut in February is still on the cards”.

Ashley Webb, *** economist at Capital Economics, said some of the Bank’s policymakers “may be worried” by the resurgence in private sector pay growth, but said she suspected most of them would be “look at the signs that the loosening in the labour market”, and cut rates.

The ***’s unemployment rate was estimated to have ticked up to 4.4%, while the estimated number of vacancies dropped 2.9% to 812,000 from October to December, continuing the decline but still remaining above pre-Covid pandemic levels.

The ONS advised treating its jobs market figures with “caution”, due to questions over the relatability of the data caused by low response rates to its survey.

Economics at Pantheon Macroeconomics said employment dropped in December as “firms put hiring on hold” following tax rises announced on businesses in the Budget.

But they added: “There is little sign from jobless claims and redundancies of a sharp labour market downturn. The labour market is loosening, but only gradually.”

Ms Coles said the “good news on wages” could be short-lived going further into the year as there was a “risk that businesses will be under pressure to cut costs in the face of higher employers’ National Insurance bills, so will cut back on both staff and wage rises”.

Regular pay increased by an annual average of 5.6% between September and November, compared with the same ******* the year before, but when taking into account inflation, the real wage increase was 3.4%.

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