Labour Market Outlook | Wage growth defies expectations but hiring slows amid business uncertainty

Wage growth in the UK has continued to rise for the third month in a row, defying expectations, but signs of trouble are brewing for job seekers. The latest data from the Office for National Statistics (ONS) shows that while pay packets are getting bigger, hiring has slowed, and vacancies continue to decline.

With National Insurance contributions and the National Living Wage set to increase in April, businesses are weighing up the cost of employment. Some are already taking action by limiting recruitment, and concerns are mounting that more redundancies could be on the way.

Wage growth outpaces inflation

Average weekly earnings, excluding bonuses, rose by 5.9% in the final quarter of 2024 compared to the previous year. After adjusting for inflation, real wage growth stood at 2.5%, giving workers some relief from the cost-of-living crisis.

Private sector wages grew by 6.2%, while the public sector saw a 4.7% increase. But with pay growth running at more than double the level needed to keep inflation stable, economists warn this could limit how quickly the Bank of England is able to cut interest rates.