Surprising UK Wage Surge in Q4 2024 - You Won't Believe How Much!

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Wage growth in the UK saw a significant acceleration towards the end of last year, as indicated by official data. Economists predict that this will further bolster the Bank of England’s gradual strategy towards cutting interest rates.
According to the Office for National Statistics, average weekly earnings (excluding bonuses) in the three months leading up to December were 5.9% higher compared to the previous year. This marks an improvement from the 5.6% growth seen in the three months leading up to November. Notably, these figures aligned perfectly with economists’ expectations polled by Reuters.

Wage growth acceleration was particularly pronounced in the private sector, a crucial metric for the BoE. Here, average earnings (excluding bonuses) spiked by 6.2%. On the other hand, public sector wages saw a growth of 4.7% during the same period. The BoE had initially forecasted a 6.3% growth in private sector wages for the said three-month period, aligning with its decision to cut interest rates by a quarter point to 4.5% in the current month.
Ashley Webb, an economist at Capital Economics, noted that the latest data does not suggest any deviation from the BoE’s existing gradual stance on interest rate cuts.

The upward pressure on wages coincided with a decline in payrolled employment by 14,000 between November and December, according to HM Revenue & Customs data cited by the ONS. In the three months leading up to December, payrolled employment was 3,000 lower compared to the previous quarter. However, early estimates for January indicated that payrolled employee numbers rose by 21,000 from December onwards.

These employment figures are crucial indicators to evaluate the effects of Chancellor Rachel Reeves’ October Budget on the labor market. The budget involved an increase in employers’ national insurance contributions and a raise in the minimum wage. Following the summer of 2024, the BoE executed its third interest rate cut on February 6, emphasizing a cautious approach towards future rate reductions.

As the labor market’s latest snapshot unfolds, analysts eagerly anticipate the release of January inflation data on Wednesday. Predictions suggest a surge in annual price growth to 2.8% in January from 2.5% in December, showcasing the ever-evolving economic landscape. Stay tuned for more updates and insights into the dynamic realm of UK employment trends.