British pay growth accelerated in the last three months of 2024, according to official data published today that underscored why the Bank of England has adopted a careful stance about cutting interest rates again despite a weak overall economy.
Private-sector pay excluding bonuses - the Bank of England's main gauge of domestic inflation pressure - rose by 6.2% compared with the same period a year earlier, the fastest pace in a year and up from 5.9% in the three months to November, the Office for National Statistics said.
Sterling rose against the dollar immediately after the data release.
Suren Thiru, economics director at accountancy body ICAEW, said the data did not show signs of a deterioration in the economy, which meant an interest rate cut at the Bank of England's next meeting in March was unlikely.
But "the downward pressure from a stagnating economy, a loosening labour market and April's jump in businesses' costs mean this current upswing (in pay growth) is likely to be short-lived," Thiru said.
Employers say finance minister Rachel Reeves' plan to increase the social security contributions they pay from April will reduce hiring and wage growth.
However, the pace of pay increases has remained far above levels consistent with the Bank of England's 2% inflation target.
The central bank said this month it expected annual private sector wage growth of 6.3% in the fourth quarter of last year - slightly higher than the ONS reading - before a deceleration over the course of this year.
Bank of England Chief Economist Huw Pill said in an interview with Reuters last week that he believed the main problem for Britain's sluggish economy was one of supply - including a shortage of workers.
The ONS said pay across the whole economy, excluding bonuses, was 5.9% higher in the three months to the end of December than a year earlier, the strongest reading since the three months to April last year.
Including bonuses, pay was up by 6%, its fastest since the end of 2023.
A Reuters poll had pointed to both wage measures rising by 5.9%.
The Bank of England expects pay increases to slow soon as weakness in the economy weighs on the labour market.
British gross domestic product stagnated in the third quarter of 2024 but unexpectedly grew by 0.1% in the last three months of the year.
A survey published yesterday showed that around one in three employers planned to cut headcount as they responded to Reeves' tax increase.
Today's official data showed vacancies fell by 9,000 in the three months to January from the three months to October but remained 23,000 higher than immediately before the coronavirus pandemic.
Separate data provided by employers to the tax authorities showed the number of employees rose by 21,000 in January from December, only the third rise in the past eight months.
Britain's unemployment rate, based on a survey that the ONS is overhauling and is no longer considered an accurate gauge, held at 4.4%.
