UK wages receive a year-end boost as private sector remains robust

Average UK earnings excluding bonuses for the three-month period to the end of December rose 5.9% on an annual basis to £664 per week, according to the Office for National Statistics. 

This was in line with analyst estimates, while being a step up from the 5.6% increase seen in the last three-month period. It was also the quickest rise since the three months to April 2024. 

The figure was mainly boosted by strong private sector wage growth, which jumped 6.2% in the three months to December 2024, in contrast to 5.9% in the last period. Although this was the highest gain since the three months to November 2023, it still marginally missed the Bank of England (BoE)’s prediction of 6.3%. 

Public sector wage growth up

Public sector wage growth also quickened, edging up from 4.2% in the previous period to 4.7% in the three months to December 2024. 

Manufacturing, construction, wholesale, hotels, retailing and finance and business services also experienced strong wage growth. 

Wage growth in real terms, adjusted for inflation, increased by 2.5% in the three months ending December 2024, inching up from the 2.4% rise seen in the previous period. December’s figure was also the highest increase in seven months. 

Average UK earnings including bonuses for the three-month period ended December grew 6%, up from 5.5% in the previous period, as well as ahead of analyst expectations of 5.9%. 

The UK’s unemployment rate was 4.4% in the three months to December 2024, which was the same as the previous three-month period, but under market estimates of 4.5%. It was also the highest figure since the three months ended May 2024, mainly because of a rise in people without jobs for up to 12 months. 

UK wage growth could potentially fan inflation

Kyle Chapman, FX markets analyst at Ballinger Group, said in an email note: “UK wage growth accelerated in the three months to December, rising from 5.5% to 6.0% and beating consensus expectations for a 5.9% print.

“This report is a reminder that the Bank of England’s job is not done and there is still some way to go in eradicating inflationary persistence … 6% wage growth in a period of negative productivity growth is self-evidently inflationary.

“At the margin this may make policymakers a touch more cautious heading into the March meeting. But the uptick was already incorporated into the last projections, and the threat of an imminent loosening in the labour market with the bump in employers’ taxes will prevent them from dragging their feet.”

Questions about robustness of UK jobs market

Danni Hewson, head of financial analysis at AJ Bell, also said in an email note: “The pressure of those National Insurance changes coupled with an increase in the National Living Wage is being considered a tax on jobs, and the big question is how bad the post-Budget weather will really get and whether the UK jobs market is sufficiently robust to ride it out.

“Vacancy numbers have been steadily falling back from post-Covid highs, though the number of positions available is still higher before that first lockdown, and looking at early estimates of January’s payroll numbers there is cause for a bit of optimism.

“Employers have a keen understanding of the value of reliable, skilled workers and they’re prepared to keep rewarding that workforce if it means they don’t have to deal with the expense and upheaval of recruitment and re-training. There’s also been an uptick in demand from the construction industry, which has been bolstered by the twin tailwinds of falling interest rates and a government committed to ‘build baby build’.”