Wage growth across the UK is losing momentum, signalling a shift in the labour market after several years of strong increases.
Latest figures from the Office for National Statistics show that average earnings, excluding bonuses, rose by 3.8% in the three months to January—down from 4.2% in the previous period and marking the slowest pace of growth in more than five years.
Even so, pay is still rising faster than inflation, which stood at 3% in January, meaning real earnings continue to edge upwards—for now.
Beneath the surface, the labour market appears stable but subdued. The unemployment rate held at 5.2%, close to a five-year high, while payroll numbers rose modestly by around 20,000 in February, bringing total employment to 30.3 million.
One notable divide remains between sectors. Public-sector pay continues to grow more quickly, with annual earnings up 5.9%, compared with 3.3% in the private sector. This gap reflects ongoing efforts to address pay pressures in areas such as healthcare and education, even as private employers take a more cautious approach.
Hiring demand is also showing signs of cooling. Job vacancies fell slightly by 6,000, leaving 721,000 open roles in the three months to February—suggesting employers are becoming more measured in their recruitment plans.
All of this comes at a critical moment for policymakers. The data lands just ahead of the Bank of England’s next interest rate decision, where expectations of a cut have begun to fade.
Rising fuel and energy costs, driven by escalating tensions in the Middle East, have increased the risk that inflation could pick up again. That leaves the Bank facing a delicate balancing act: wage growth is slowing, but inflation pressures have not fully disappeared.
For now, the most likely outcome is a pause. Borrowing costs are expected to remain unchanged as policymakers weigh a cooling jobs market against the risk of renewed inflation—highlighting an economy that is stabilising, but not yet fully settled.
