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Wage growth hits six-month high ahead of Bank of England interest rate decision – what it means for YOUR money
Read on to find out how the figures could impact you
WAGE growth has hit a six-month high according to new official figures, ahead of a major decision by the Bank of England on interest rates.
Average wages rose by 5.6% in the three months to November, up from 5.2% for the previous three months.
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That's according to the latest data from the Office for National Statistics (ONS).
Taking in to account inflation, which is currently at 2.5%, pay increased 3.4%, rising at the fastest rate since 2021.
If wages don't keep up with rising prices, then it means people are worse off in real terms.
While rising wages are good for workers, the Bank of England fears that it could push up inflation.
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Commenting on today's labour market figures, ONS director of economic statistics Liz McKeown said: "Pay growth picked up for a second consecutive period, again driven by strong increases in the private sector.
"Real pay growth, which excludes the effects of inflation, increased slightly."
But the figures also revealed that unemployment has continued to rise.
The ONS said unemployment rose to 4.4% between September to November, from 4.3% for the previous three months.
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The number of workers on payrolls also plunged by 47,000 during December to 30.3 million – the biggest drop since November 2020.
It follows a revised 32,000 fall the previous month.
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In a further sign of job market woes, the ONS said vacancies dropped by another 24,000 in the three months to December, to 812,000.
The ONS cautioned the latest payroll estimation, drawn from tax data, was subject to change, while the unemployment rate is still seen as unreliable due to changes to the jobs survey, but experts said the figures show a flagging jobs market overall.
Work and Pensions Secretary Liz Kendall said: “Today’s figures are more evidence that we must Get Britain Working, which is why this Government is relentlessly focused on driving up opportunity and driving down barriers to success in every part of the country.
“With real wages continuing to rise we are working to boost living standards and get the economy growing as part of our Plan for Change by reforming Jobcentres, joining up fragmented local support and guaranteeing every young person has the chance to be earning or learning.”
The figures were the first to take into account possible early reaction to the Budget.
Rachel Reeves announced a raft of changes in her first Budget, including increasing the rate of National Insurance that employers pay and pushing up the minimum wage.
These measures will come into force in April and businesses have warned that this could dampen hiring.
Today's figures could suggest some employers were eager to hold onto staff by increasing their pay at a time when others were keen to cut costs.
The latest figures follow market turmoil partially linked to concerns about the state of the UK economy.
Why does inflation matter?
INFLATION is a measure of the cost of living. It looks at how much the price of goods, such as food or televisions, and services, such as haircuts or train tickets, has changed over time.
Usually people measure inflation by comparing the cost of things today with how much they cost a year ago. The average increase in prices is known as the inflation rate.
The government sets an inflation target of 2%.
If inflation is too high or it moves around a lot, the Bank of England says it is hard for businesses to set the right prices and for people to plan their spending.
High inflation rates also means people are having to spend more, while savings are likely to be eroded as the cost of goods is more than the interest we're earning.
Low inflation, on the other hand, means lower prices and a greater likelihood of interest rates on savings beating the inflation rate.
But if inflation is too low some people may put off spending because they expect prices to fall. And if everybody reduced their spending then companies could fail and people might lose their jobs.
See our UK inflation guide and our Is low inflation good? guide for more information.
The government has increased its borrowing, which has put a strain on the Chancellor Rachel Reeves' spending rules.
As a result, her management of the economy has been put under greater focus.
Sterling fell again on the back of growing expectations that signs the economy is flatlining would give the Bank of England more room to cut interest rates.
Last Friday fresh data revealed that retail sales were weak in December.
Key economic figures, including the Bank's newest rate-setter, believe the the base rate will be cut four times this year.
The market has only fully priced in two reductions.
The base rate is used by high street banks to set the rates it offers customers on savings and borrowing, including mortgages.
Pay growth is being watched carefully by the Bank for signs of stubborn inflation, but a surprise fall in inflation last month, to 2.5% from 2.6% in November, is seen as smoothing the path for a February rate cut, from 4.75% to 4.5%.
Investors currently see an 84% likelihood that the Bank of England cuts rates by a quarter percentage point in its next meeting on February 6.
Luke Bartholomew, Deputy Chief Economist at abrdn, said: “The big test for the labour market remains how firms will respond to the increase in National Insurance and the National Living Wage this spring.
"So far, surveys seems to suggest both weaker hiring intentions and the possibility of another round of price and wage increases.
"So until there is clarity on that the Bank of England is unlikely to move away from its 'gradual' mantra on rate cuts.
"But for now, there is nothing in this data that will derail a February cut from the BoE.”
What it means for your money
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, the wealth manager, said some companies are already scaling back on pay rises and hiring in preparation for the coming changes in April.
She said: "Some of Britain’s biggest employers have already issued stark warnings about the impact the Chancellor’s tax rises will have on their businesses and staffing levels.
“The prospect of job insecurity and stubborn inflation won’t be the news households want to hear after years of high living and borrowing costs.
"This is why keeping personal finances in order should be a key priority for households. Losing a job can devastate households that don’t have adequate reserves in place."
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Make sure you have an emergency fund that can cover household bills during a period when you may not have any income, she suggests.
Pay down expensive debts and consider signing up for income protection to help soothe any financial fears.
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