Wage growth slows again - but it is still outpacing inflation

Pay growth has fallen to 6.6%, while the number of vacancies has dropped for the 18th month in a row. We explain what it means for the wider economy - and for interest rates.

UK, London, blurred motion of incidental business people walking to work with view of the financial district behind
(Image credit: Getty Images)

Wage growth has fallen sharply from 7.3% to 6.6%, while vacancies dropped further in the longest run of declines on record.

The Office for National Statistics (ONS) said private sector regular earnings, excluding bonuses, rose by 6.6% in the three months to November. 

Meanwhile, the estimated number of vacancies in the UK fell by 49,000 to 934,000 between October and December, marking the 18th time in a row they have dropped.

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However, pay growth is still outpacing inflation (the Consumer Prices Index was 3.9% in the 12 months to November).

The chancellor Jeremy Hunt said: “With inflation falling, it’s heartening to see real wages growing for the fifth month in a row. This is on top of the record cut to National Insurance worth nearly £1,000 in a typical household with two working people, putting more money in their pockets.”

The unemployment rate remained at 4.2%, which means it is still below the Bank of England’s prediction of a rise to 4.3% by December.

The employment rate ticked up slightly; it now 75.8%, versus 75.7% in the three months to November.


The Bank of England is watching wage growth closely, with last year’s record highs a cause for concern in its battle to bring inflation back down to its 2% target.

While pay growth has fallen, it is still outpacing price rises. The Bank will need to weigh up whether an interest rate cut could fuel inflation, which is at 3.9%, almost double the Bank's target.

The financial markets, as well as some economists, believe we could see the first rate cut by the summer.

Ashley Webb, UK economist at the consultancy Capital Economics, said: “Overall, the second bigger-than-expected fall in wage growth in as many months lends some support to our view that interest rates will be cut from 5.25% to 5.00% in June.”

However, others are not so sure. Nicholas Hyett, investment manager at Wealth Club, commented: “Wage growth remains above inflation. That's good news for workers, but together with rising employment may put the Bank of England off cutting interest rates any time soon. If the economy can function with interest rates at their current level, why cut?”

“That would bode ill for investors - who have bet big on rates falling this year - and could see share and bond prices fall if rate cuts don't come through as expected.”

The first interest rate meeting of 2024 will take place on 1 February. Rates have been frozen at 5.25% at the last three meetings, after they were raised from 5% to 5.25% in August 2023.  


Inflation is at its lowest level in more than two years. In the 12 months to November, the rate slowed to 3.9%, down from 4.6% in October.

It is expected to ease again to 3.8% in the 12 months to December.

Webb at Capital Economics said the big drop in wage growth in November signals that “domestic inflationary pressures are fading fast”.

According to Chris Arcari, head of capital markets at the pensions and investment consultancy Hymans Robertson, some factors might slow inflation’s decline, such as “recent shipping and energy-price rises – owing to disruption in the Red Sea”.

However, he added: “As it stands, those risks are unlikely to stop inflation falling further and prevent rate cuts this year from the major central banks, including the Bank of England. These risks could be contributing factors, however, alongside still-elevated levels of wage growth and core inflation, if we do see fewer rate cuts than expected.”

Ruth Emery
Contributing editor

Ruth is an award-winning financial journalist with more than 15 years' experience of working on national newspapers, websites and specialist magazines.

She is passionate about helping people feel more confident about their finances. She was previously editor of Times Money Mentor, and prior to that was deputy Money editor at The Sunday Times. 

A multi-award winning journalist, Ruth started her career on a pensions magazine at the FT Group, and has also worked at Money Observer and Money Advice Service. 

Outside of work, she is a mum to two young children, while also serving as a magistrate and an NHS volunteer.