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UK unemployment ticks higher as wage growth accelerates

By Abigail Townsend

Date: Tuesday 21 Jan 2025

UK unemployment ticks higher as wage growth accelerates

(Sharecast News) - UK unemployment ticked higher as vacancies shrank in the autumn, official data showed on Tuesday.
However, wage growth picked up during the same, adding to the pressures facing the Bank of England's interest rate-setting committee.

According to the Office for National Statistics, payrolled employees eased 0.1%, or by 32,000, between October and November. The ONS added that its early estimate for December was for a further 0.2% decline on the month, by 47,000.

The employment rate was 74.8% in September to November, largely unchanged on the same period a year previously but down over the last quarter. The unemployment rate was 4.4%, in line with forecasts.

Vacancies, meanwhile, decreased by 24,000 to 812,000 in October to December.

However, while the jobs market showed clear signs of contraction, wage growth - a key driver of inflation and ongoing concern for the Monetary Policy Committee - was on the rise.

Average annual growth for both regular (excluding bonuses) and total (including bonuses) earnings was 5.6% in the three months to November, up from 5.2% in October. It was also slightly higher than the 5.5% anticipated by economists.

In real terms, which accounts for inflation, annual growth was 2.5% for regular pay and 2.4% for total pay.

The MPC cut rates twice in 2024. Although consumer price index inflation is well off record highs seen in 2022, at 2.5%, services inflation remains sticky, while both private and public sector wage growth remains a concern.

In addition, businesses are facing a raft of extra costs this year, after increases in both employer National Insurance contributions and the National Minimum Wage were announced in the Budget.

At the same time, however, economic growth remains sluggish. In November, GDP rose by 0.1%, the first expansion since August. But it was below the 0.2% uplift forecast, and followed a 0.1% contraction in both October and September.

Mat Swannell, chief economic adviser to the EY Item Club, said: "Today's data epitomises the bind the MPC finds itself in. Though pay growth remains resilient and well above target-consistent pace, the jobs outlook is clearly weakening.

"The minutes of December's meeting suggested that the MPC is starting to place more emphasis on concerns about soft output and employment growth, so it's reasonable to expect it will lower Bank Rate by 25 basis points in February and stick to its cut-hold tempo through the rest of 2025."

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: "Pay hasn't put this much clear blue water between itself and inflation for around 3.5 years, so the difference is palpable.

"However...there's always the risk that if wages keep running hot, it will be mean higher inflation for longer, which will put pressure on the BofE to push rate cuts further own the road.

"On balance, the lack of growth and a month of falling inflation are likely to mean a rate cut in February is still on the cards. But the BofE will be watching for any signs that higher wage bills will force employers to put their prices up."

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