ONS: UK wage growth still outstripping inflation

Wage growth has continued to outpace inflation, ONS statistics show

(Image credit: Getty Images)

published 13 February 2024

Wage growth continued to outstrip UK inflation in the last quarter of 2023, the latest Office for National Statistics (ONS) data has revealed.

Pay, excluding bonuses, grew 6.2% in the final three months of last year compared with the same period a year earlier, the ONS said. However, the rate of growth has slowed once again.

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After the rate of price rises between October and December 2023 are factored in, pay grew 1.9% in real terms. It means actual pay has risen by its highest amount since the first quarter of 2021, when wages rose 3% on average.

Taken on its own, the 6.2% figure marks a slowdown in numerical growth compared with the previous quarter, when pay rises grew 7.8%. It suggests wages are moving more in line with the UK’s inflation rate, which sat at 4% in December 2023. January 2024’s CPI is due to be released on Wednesday (14 February).

Meanwhile, new employment data for the fourth quarter of 2023 showed the estimated number of job vacancies fell 26,000 quarter-on-quarter to 932,000. However, the employment rate remained relatively flat at 75%, while the rate of redundancies grew from 2.6 per thousand employees to four over the same period.

It comes amid concerns the UK is in the midst of a technical recession, with the next set of GDP figures due to be released on Thursday (15 February). The Bank of England held interest rates at a near-16-year high of 5.25% at the start of the month.

WHAT DO THE WAGE GROWTH FIGURES MEAN FOR INTEREST RATES?

Wage growth is being closely watched by the Bank of England. The UK’s central bank has a target of keeping the annual rate of CPI inflation to 2%, something it tries to achieve using interest rates.

But the Bank has been concerned that higher rates of pay growth were embedding price rises in the economy since wage rises began to outstrip inflation in the middle of 2023. In its latest Monetary Policy Committee report, published on 1 February, it noted that wage growth had eased and was expected to decline further this year. But it added that it expects persistent inflationary pressures to continue to keep the headline rate of inflation above its target over the course of 2024.

Interactive investor’s head of investment, Victoria Scholar, says the latest pay growth figures showed there was “slack” in the labour market. “Pay growth slowed from 6.7% in the previous month to 6.2% excluding bonuses in the year to October to December 2023. Including bonuses, the figure dropped from 6.7% to 5.8%,” she says.

“Both are still strong and above expectations, but below the record growth rates seen in recent months. No doubt the Bank of England will be relieved to see that pay growth is slowing, in terms of its goal to bring inflation back down towards 2%.”

While the economic consensus suggests that interest rates are at the peak of their current cycle, barring any major shocks to the economy, there is a great deal of doubt about when the bank rate will be cut. Although the latest labour market news will ease the pressure on the Bank of England, continued uncertainty around where inflation will go next is a bigger concern for the Bank than pay rise growth alone.

Should inflation rise again tomorrow - a very real possibility given January’s Ofgem energy price cap hike - it could mean interest rates stay where they are for longer than expected. This uncertainty is currently being played out in the mortgage market, where cuts are slowing down and rates are rising at some lenders.

Henry Sandercock has spent more than eight years as a journalist covering a wide variety of beats. Having studied for an MA in journalism at the University of Kent, he started his career in the garden of England as a reporter for local TV channel KMTV.

Henry then worked at the BBC for three years as a radio producer - mostly on BBC Radio 2 with Jeremy Vine, but also on major BBC Radio 4 programmes like The World at One, PM and Broadcasting House. Switching to print media, he covered fresh foods for respected magazine The Grocer for two years.

After moving to NationalWorld.com - a national news site run by the publisher of The Scotsman and Yorkshire Post - Henry began reporting on the cost of living crisis, becoming the title’s money editor in early 2023. He covered everything from the energy crisis to scams, and inflation. You will now find him writing for MoneyWeek. Away from work, Henry lives in Edinburgh with his partner and their whippet Whisper.