There has been an acceleration in the rate of wage growth but an increase in the unemployment rate following a sharp fall in the number of salaried employees, according to the latest official figures.
The Office for National Statistics (ONS) reported that basic pay excluding bonuses and average weekly earnings increased at an annual rate of 5.6% in the three months to November.
This represents an increase from the 5.2% rate recorded the previous month.
The ONS said the unemployment rate rose from 4.3% to 4.4%.
Last money: Sterling appreciates after Trump omission
The employment figures were the first to factor in a possible early reaction to the Budget and may suggest that some employers were keen to retain key staff through high salaries, while others were looking to cut costs in a context of difficult prospects and in anticipation of imminent tax increases.
HMRC payroll data and ONS survey data both indicated a fall in employment.
The number of salaried employees is believed to have fallen by 47,000 in the 12 months to December, to 30.3 million – the biggest fall since November 2020 – according to tax figures.
This is an increase from 32,000 recorded the previous month.
The data was seen as confirming the findings of a recent private sector survey of a shooting frenzy before Christmas due to the impact of the budget.
The report was published against the backdrop of recent turmoil in financial markets, linked in part to concerns about the state of the UK economy following the October 30 budget, but mainly to the potential impact of a new presidency of Donald Trump.
Sterling has lost 12 cents against the dollar since September, while government borrowing costs have generally risen, straining Chancellor Rachel Reeves’ spending rules and putting more emphasis on her management of the economy.
Last Friday, following data showing low retail sales During the crucial Christmas month, the pound fell again, but amid growing expectations that growing evidence of a stagnant economy would give the Bank of England more room to cut interest rates .
Some market commentators, and even the Bank’s newest rate-setting bodyestimate that borrowing costs will be reduced four times this year, although the market has only fully priced in two reductions so far.
Investors currently estimate an 84% probability of a reduction in the key rate at the next meeting on February 6, from 4.75% to 4.5%.
Please use Chrome browser for a more accessible video player
The latest set of inflation figures, which showed a surprise slowdown in the headline figure, will have given the Bank some encouragement, but economists are forecasting a return above 3% by April given expected increases in many costsincluding energy and water bills, starting this month.
While the fiscal measures on businesses have sparked warnings of higher prices to offset billions in extra costs, it could also be that threats of consequences on wages and employment are helping Bank policymakers make make their case for rate reductions.
Yael Selfin, chief economist at KPMG UK, said of the outlook: “We expect wage growth to be on a downward trend over the coming year, amid a slowdown in labor market activity.
“Forward-looking indicators suggest a significant weakening in hiring intentions due to upcoming tax hikes in April. We believe this will act as a drag on labor market activity in the short term, which will likely result in a slight increase in overall unemployment over the coming months. However, once the impact of the budget and the expected improvement in economic activity have passed, labor market conditions should stabilize.
“Wage growth is expected to return closer to levels consistent with the inflation target this year, despite the recent increase. Rising costs for businesses due to fiscal measures are expected to have a cooling effect on labor market activity and make higher pay deals less likely. As a result, the Bank of England is expected to opt for one interest rate cut next month and two further rate cuts in 2025.”