Wage growth accelerated in the last three months of 2024 in a setback to hopes for faster cuts in interest rates from the Bank of England.
Latest data from the Office for National Statistics (ONS) showed average base pay not including bonuses, rose by an annual rate of 5.9%, up from 5.6% in the previous quarter.
If bonuses are included pay went up by 6% compared with 5.5% previously.
That means workers’ real buying power, after taking inflation into account, rose by 2.5%, the fastest rate for four years. It means the long squeeze on living standards is now over with most workers starting to be better off as wages outpace prices.
However, Bank of England rate setters will be worried that persistent wage inflation will feel into shop prices and keep inflation above the 2% target for longer.
Suren Thiru, Economics Director at accounting body ICEAW, said: “These jobs figures may make a March rate cut less likely because they should help ease concerns among policymakers over the health of the economy that drove the dovish policy loosening earlier this month.”
Meanwhile the employment market continued to soften with nearly 50,000 more people looking for work - making a jobless total of 1.56 million - and the unemployment rate rising by 0.1% to 4.4%.
There were an estimated 819,000 vacancies in the UK in the three months to January, a decrease of 9,000, or 1.1% on the previous quarter. It weas the 31st consecutive month that vacancies have fallen, though the rate has slowed sharply.
Richard Carter, head of fixed interest research at wealth management group Quilter Cheviot, said: “Wage growth remains a key concern for the Bank of England. Regular pay, excluding bonuses, grew by 5.9%, while total pay, including bonuses, rose by 6.0% in the final quarter of 2024.
“This slight acceleration in earnings growth may complicate the Bank’s decision-making, as it must balance concerns over a slowing economy with the risk that strong pay growth could sustain consumer spending and slow disinflation.”
Kyle Chapman, FX Markets Analyst at foreign exchange broker Ballinger Group, said: This report is a reminder that the Bank of England's job is not done and there is still some way to go in eradicating inflationary persistence. 6% wage growth in a period of negative productivity growth is self-evidently inflationary.
The figures come in a big week for economic data with the ONS releasing numbers on inflation, the public finances and retail sales in the coming days
