Wage growth in the UK slowed sharply to 3.8% in the three months to January, its lowest rate in over five years, according to the Office for National Statistics. The figure, down from 4.2% in the previous period, fell more than City economists had forecast.
The ONS reported that job vacancy rates remained steady and the number of people entering the labour market edged up slightly. However, younger workers are bearing the brunt of the slowdown, with unemployment among 18-24 year olds rising to its highest rate since 2015, leaving almost 600,000 young people out of work and seeking jobs.
Martin Beck, chief economist at WPI Strategy, highlighted a stark divide: since payroll employment peaked in mid-2024, the number of employees aged 34 and under has fallen by nearly 220,000, while those aged 35 and over has risen by 110,000. “That points to employers cutting back most sharply on entry-level hiring,” he said. The Chartered Institute of Personnel and Development described the rise in youth unemployment as “a huge waste of potential”.
The slowdown in wage growth was partly driven by a reduction in public sector pay, where annual regular earnings growth stood at 5.9%, compared with 3.3% in the private sector. The ONS noted that one-off bonuses linked to past inflation had begun to drop out of annual figures.
Despite the weak wage data, the Bank of England is expected to hold interest rates at 3.75% later today, amid geopolitical tensions and rising oil prices. Peter Dixon of the National Institute of Economic and Social Research said the labour market weakness adds to the Bank’s dilemma, as lower wage growth pulls inflation down while the Middle East conflict pushes prices up. Jake Finney of PwC UK said the weak labour market reduces the likelihood that higher energy prices will feed into broader inflation, but rate cuts remain unlikely until geopolitical tensions ease.
Work and Pensions Secretary Pat McFadden noted that there are 388,000 more people in work compared with a year ago, taking the total to 34.3 million, but acknowledged “there is more to do to get people, particularly young people, into work”.
