UK wage growth slows to lowest rate in five years
The UK’s labour market was weakening at the start of the year, even before the onset of the conflict in the Middle East.
The UK labour market remained sluggish at the start of the year, according to the latest figures from the Office for National Statistics (ONS), with real wage growth reaching its lowest rate in more than five years.
The number of payrolled employees rose by 6,000 between December 2025 and January 2026, but fell by 96,000 (0.3%) compared to January 2025. The UK unemployment rate rose by 0.1 percentage points year on year to 5.2% in the three months to January, remaining at a five-year high having risen to 5.2% in the three months to December.
While these aren’t encouraging figures in their own right, in the context of a market that had appeared to be deteriorating rapidly, there is some cause for encouragement.
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“The UK labour market is showing some signs of resilience, with unemployment holding steady and payrolls unexpectedly rising, an encouraging signal after months of cooling demand,” said Lale Akoner, global market analyst at eToro.
Given that the data precedes the conflict in the Middle East, though, it is largely irrelevant as the picture is likely to have changed significantly in the meantime.
Wage growth continues to slow
Average UK wage growth in the three months to January was 3.8% for regular earnings, and 3.9% with bonuses included. Adjusted for CPIH inflation, regular earnings grew just 0.4% in the year to the period.
This is the lowest rate of wage growth in nominal terms since late in 2021, when the UK economy was still reeling from the impact of the Covid pandemic, and the slowest pace of real wage growth since June 2023.
Month on month, average weekly earnings increased at their slowest rate in more than five years in January.
“These figures confirm that the UK’s labour market headed into this energy crisis in a fragile state, as a stagnating economy and skyrocketing staffing costs continue to compel businesses to curb recruitment and limit salary settlements,” said Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales.
Again, the picture could be set to get worse, with rising oil prices adding to the strain on the economy.
“This slowdown in earnings growth will likely gain impetus in the coming months as the growing financial squeeze on firms from surging energy costs further restricts pay rises, despite upward pressure from next month’s minimum wage increase,” said Thiru. “The UK’s jobs market is painfully exposed to the fallout from the Iran war as hiring intentions already weakened by soaring labour costs will likely deteriorate further as higher energy bills start to bite, pushing unemployment close to 6%.”
The Bank of England’s MPC is unlikely to cut interest rates, despite the weakening economy, while it remains unclear what could happen to inflation in the meantime.
