UK Wage Growth Slumps to 3.8% as Hiring Slowdown Hits Younger Workers
Wage growth in the United Kingdom has decelerated sharply, dropping to 3.8% in the three months to January, according to the latest data from the Office for National Statistics. This represents a significant fall from the previous rate of 4.2% and marks the slowest pace of earnings growth in more than five years, exceeding forecasts by City economists.
Steady Unemployment Amid Labour Market Challenges
The unemployment rate remained unchanged at 5.2%, with job vacancy rates holding steady and a slight increase in the number of people entering the labour market. However, the overall picture reveals underlying weaknesses, particularly affecting younger demographics.
Martin Beck, chief economist at WPI Strategy, highlighted a stark divide in the labour market. "The split between younger and older workers remains stark," he said. Since mid-2024, employment among those aged 34 and under has declined by nearly 220,000, while jobs for workers aged 35 and over have risen by 110,000, indicating a sharp reduction in entry-level hiring.
Unemployment among 18-24 year olds has surged to its highest level since 2015, with almost 600,000 individuals in this age group out of work and seeking employment. The Chartered Institute of Personnel and Development described this trend as "a huge waste of potential."
Public Sector Impact on Earnings
A key factor in the overall decline in average earnings growth, excluding bonuses, was a reduction in public sector wage settlements. Public sector regular earnings growth stood at 5.9%, compared to 3.3% in the private sector. Delayed settlements and bonuses, previously used to offset inflation spikes, have begun to drop out of annual figures, pulling down the national average.
Bank of England's Interest Rate Dilemma
The slowdown in wage growth is unlikely to influence Bank of England policymakers, who are expected to maintain interest rates at 3.75% during their upcoming meeting. This decision comes amid escalating Middle East conflicts and a 25% surge in gas prices, which have heightened concerns about inflationary pressures.
Peter Dixon, a senior economist at the National Institute of Economic and Social Research, noted the dilemma facing policymakers. "The continued weakness of the labour market will add to the headaches facing the Bank of England ahead of today’s interest rate decision," he said. While wage growth pulls down inflation, geopolitical tensions and rising oil prices threaten to push it higher.
Jake Finney, a senior economist at PwC UK, added that labour market fragility reduces the likelihood of energy price increases translating into broader inflation, making further rate hikes difficult to justify. However, rate cuts remain improbable until geopolitical tensions ease.
This follows the US Federal Reserve's recent decision to hold interest rates steady, resisting external pressures for reductions.
