Faster pay growth makes interest rate cut unlikely

Pay growth has picked up for the first time in more than a year, according to the latest official figures.

Regular pay grew at a faster-than-expected annual pace of 5.2% between August and October, the Office for National Statistics (ONS) said.

Wages are continuing to increase faster than the price of goods. Analysts say this means the Bank of England is unlikely to cut interest rates when it meets this week.

Other figures suggested the jobs market is continuing to weaken, with job vacancies falling again and a drop in the number of people on payrolls.

The unemployment rate was unchanged at 4.3%, although there are questions over the reliability of the jobs figures from the ONS due to issues with how it gathers the data.

"After slowing steadily for over a year, growth in pay excluding bonuses increased slightly in the latest period driven by stronger growth in private sector pay," said Liz McKeown, director of statistics at the ONS.

Private sector pay grew at an annual pace of 5.4%, the ONS said.

The stronger-than-predicted rise in wages means the Bank of England is expected to keep interest rates unchanged when it meets later this week.

"Today's data release will do little to shift the Bank's focus away from worrying about high inflation to more towards worrying about weak activity and leaves it looking even more likely that the Bank will keep interest rates on hold at 4.75% on Thursday," said Ashley Webb, UK economist at Capital Economics.

The number of job vacancies fell by 31,000 to 818,000 in the September-to-November period, the ONS said, although the total remains above pre-pandemic figures.

The ONS also said provisional data indicated that the number of staff on payrolls fell by 35,000 in November 2024.

Many firms have argued the increase in employers National Insurance Contributions announced in the Budget will hit jobs.

At the weekend, the boss of Reed, one of the UK's largest recruitment firms, told the BBC the economy was "cooling", suggesting a recession may be "around the corner".

A separate survey released on Monday indicated that private sector employment December had fallen at the fastest rate for nearly four years.

Work and Pensions Secretary Liz Kendall said: "Today's figures are a stark reminder of the work that needs to be done.

"To get Britain growing again, we need to get Britain working again – so people have good jobs which pay decent wages and offer the chance to progress."