ONS: UK wage growth slows, but still outpaces inflation

ONS data shows that wage growth has slowed again – but is it enough for an interest rate cut from the Bank of England? We look at what the latest economic developments mean for your money.

A payslip with some bank notes and coins.
(Image credit: Yau Ming Low)

UK wage growth slowed again in the three months to January, but it is still outstripping inflation

Average earnings (excluding bonuses) grew by 6.1%, down from 6.2% a month ago. It is the fifth consecutive time wage growth has slowed. If we take bonuses into consideration, wage growth was slower still at 5.6%, compared to 5.8% a month ago. 

Despite this, wages are still rising more quickly than inflation, which is currently sitting at 4%

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What’s more, in his Spring Budget on 6 March, Jeremy Hunt said he expects inflation to fall further in the coming months. The Office for Budget Responsibility (OBR) is currently forecasting an average rate of 2.2% for 2024 as a whole. 

Those with a mortgage or debts to repay may be wondering what this means for interest rates. However, while wage growth is easing, it is likely that the Bank of England will want the economy to cool further before making a rate cut. 

Policymakers won’t want to make any decisions that they’ll end up having to unwind further down the line, if the economy starts heating up again. 

We look at what the latest developments mean for you. Are you better off than a year ago? Where are interest rates headed? And what can you do if your employer is considering redundancies? 

Real wage growth: are you better off than a year ago? 

It is better to look at “real wage growth” than “nominal wage growth” when assessing the health of your finances. The reason for this is that, if you get a 5% pay rise but the annual rate of inflation is 10%, you are actually going to be worse off than you were before. 

To calculate real wage growth, you discount any salary increases by the rate of inflation

In the UK, real wage growth for the three months to January was 1.8% (excluding bonuses) and 1.4% (including bonuses). 

It wasn’t until August last year that wages finally rose above inflation, after failing to keep pace for almost two years. In other words, one positive that consumers can take away is that, while wage growth is now slowing, inflation has fallen at a faster rate. 

Hopefully, this means that many consumers will be starting to feel a little richer than they did a year ago.

What does slowing wage growth mean for interest rates?

The Bank of England keeps a close eye on wage growth data when setting interest rates. Over the last few years, we have experienced the highest level of inflation in a generation, peaking at 11.1% in October 2022. 

This inflation was caused by a number of factors – primarily the pandemic, supply chain disruption, and the outbreak of war in Europe. However, employers continued to increase wages in an attempt to fill vacancies and keep pace with rising costs. This added fuel to the fire. 

In the summary issued after its latest rate-setting meeting on 1 February, the Bank of England acknowledged that wage growth has now “eased across a number of measures and is projected to decline further in coming quarters”. 

However, it maintained a cautious tone overall, noting in its minutes that “measures of wage inflation had remained considerably higher in the United Kingdom than elsewhere” when compared to other countries.

In terms of what this means for monetary policy, the Bank of England will probably want to see a more challenged economy before it starts cutting rates. When John Major was Chancellor of the Exchequer in 1989 (another period when interest rates were being used to tackle inflation), he famously told the public, “If it isn’t hurting, it isn’t working”.

The base rate is currently 5.25%, and has been held at this level for the last four consecutive rate-setting meetings. Those who have experienced higher levels of interest on their mortgage or debts in recent years will be hoping for this to come down. 

Many savers, on the other hand, have taken the opportunity to switch to higher-paying accounts. Here is our round-up of the best savings accounts right now

What’s next for businesses, workers and the economy? 

“Salary rises are likely to be more muted this year as employers look to keep costs down and protect profits”, says Alice Haine, personal finance analyst at Bestinvest. 

What’s more, “some might find themselves without a job at all if businesses decide to go down the redundancy route to slash staffing costs”, she adds.

The bad news for jobseekers is that the market is becoming more challenging. Vacancies are now lower than they were, falling by 43,300 between December 2023 and February 2024. They do, however, remain above pre-pandemic levels. 

If workers are worried about the risk of redundancy, or the impact of slowing wage growth, one step they can take is to build up more of a savings buffer. 

Haine recommends “building an emergency fund that can cover up to six months’ of expenses, paying down any expensive debts to ensure they can stretch their savings as far as possible and keeping a tight lid on spending”.  

One important tip is to pick a high interest account when stashing away your emergency fund for a rainy day. Lots of providers are currently offering inflation-busting rates in the region of 5%. 

Katie Williams

Katie has a background in investment writing and is interested in everything to do with personal finance and financial news. 


Before joining MoneyWeek, she worked as a content writer at Invesco, a global asset management firm, which she joined as a graduate in 2019. While there, she enjoyed translating complex topics into “easy to understand” stories. 


She studied English at the University of Cambridge and loves reading, writing and going to the theatre.