Wage growth in the UK has slowed sharply to its lowest rate in over five years, according to the latest data from the Office for National Statistics (ONS). Average earnings growth fell to 3.8% in the three months to January, down from 4.2% in the previous period, a larger decline than economists had predicted.
The slowdown was driven partly by a reduction in public sector wage growth, as one-off bonuses linked to past inflation dropped out of annual comparisons. Public sector regular earnings grew by 5.9%, while private sector earnings rose by 3.3%.
Younger workers are bearing the brunt of the cooling labour market. Unemployment among 18-24 year olds rose to its highest rate since 2015, with nearly 600,000 young people out of work and seeking jobs. Since mid-2024, employment among those aged 34 and under has fallen by almost 220,000, while those aged 35 and over saw an increase of 110,000, pointing to a sharp reduction in entry-level hiring.
The Bank of England is expected to leave interest rates unchanged at 3.75% when it meets later today, despite the weak wage data. Analysts say the central bank faces a dilemma: slower wage growth could help curb inflation, but rising oil prices due to the Middle East conflict may push prices up. Peter Dixon of the National Institute of Economic and Social Research noted that the continued labour market weakness adds to the Bank's headaches.
Work and Pensions Secretary Pat McFadden highlighted that there are 388,000 more people in work compared to a year ago, but acknowledged the need to do more to get young people into jobs. The Chartered Institute of Personnel and Development described the rise in youth unemployment as 'a huge waste of potential'.
