Real wages increased by 3.4% between September and November 2024, compared to the same period in 2023, their quickest pace since 2021.

According to labour market statistics released by the Office for National Statistics (ONS), real regular pay rose by 3.4% and real total pay (including bonuses) rose by 3.2% on the year when using the consumer price index (CPI) measure for inflation.

Regular wages adjusted for CPI but including owner-occupiers’ housing costs (CPIH) grew by 2.5%, while total pay rose by 2.4%. Annual growth in employees’ average earnings – without adjustment for inflation – for both regular and total earnings was 5.6%.

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Stronger wage growth was concentrated in finance (6%), manufacturing (6%), wholesale and retail (6%) and the private sector (6%) with the public sector trailing at 4.1%.

Liz McKeown, director of economic statistics at the ONS, said: “Pay growth picked up for a second consecutive period, again driven by strong increases in the private sector. Real pay growth, which excludes the effects of inflation, increased slightly.

“The number of employees on payroll, drawn from tax data, fell in the three months to November. Meanwhile, our household survey also reported a fall in the number of employees, with a rise in unemployment over the same period. Alongside this, the number of vacancies fell again, for the 30th consecutive period, although the total number remains slightly above its pre-pandemic level.”

Job vacancies decreased to 812,000, 118,000 fewer than a year ago (October to December 2023) and have been falling consistently for two and a half years.

The employment rate is 74.8%, down on the quarter but largely unchanged from a year ago. Unemployment is up on the quarter and on a year ago at 4.4%, although ONS Labour Force Survey data continues to face concerns around quality and reliability.

Economic inactivity due to long-term sickness is up on the quarter at 2.81 million. It has been above 2.7 million for 18 consecutive months since April to June 2023.

Loosening labour market

James Cockett, senior labour market economist for the CIPD, said: “Today’s figures show high wage growth continues to be a mainstay in the economy. Pay growth has risen once again, driven by the private sector. Looking ahead, the pay growth picture remains difficult to predict as while the labour market is loosening, public sector pay rises towards the end of last year are yet to make their way through the system.

“Firms unable to absorb cost increases announced in the Budget may have no choice but to raise prices this year which is likely to have inflationary impacts and feed into ongoing wage growth.”

Recruitment and Employment Confederation (REC) chief executive Neil Carberry said: “This morning’s labour market data shows weakening performance before Christmas, reflecting business trading and cost concerns. That will not come as a surprise to watchers of the business surveys. The real test of this trend is what happens in January and February as firms return to hiring after Christmas, where anecdotes from recruiters in the private sector is not as gloomy.

“The underlying issues we have seen in the labour market over the past few years are still clearly visible in today’s release – an employment rate below pre-pandemic norms, and higher economic inactivity. But these challenges risk being added to by shorter-term cost concerns, resulting in today’s rise in unemployment. At the highest level, this is not a weak jobs market, with unemployment still low by historical standards and vacancies high, but the trend is concerning.

“What is needed now is the right blend of government policy and business leadership. That is why we are looking to the government for clarity on their growth plans. At the moment firms are mostly seeing cost rises that will push us farther from the 80% employment rate goal. The Industrial Strategy cannot just be about a few projects or a few sectors – it needs to step up on planning, infrastructure, tax and workforce issues to deliver. At the moment, this whole narrative feels a little disjointed.”

Talent and flexibility

Natalie Matalon, chief people officer at Totaljobs, said: “A collective discontent in the labour market makes competition for talent more intense, and businesses need to reassess their compensation packages and benefits to stay competitive. Flexibility remains a key factor for candidates, with 41% of workers citing flexible hours as their top desired benefit. However, our analysis of 17.5 million job ads shows it’s mentioned in only 13%. Companies that offer additional clear flexibility will have a competitive advantage in attracting talent, especially among those currently inactive in the labour market.”

Jack Kennedy, senior economist at Indeed, said: “The spectre of stagflation lingers, with businesses still to absorb April’s increase in labour costs as a result of the Budget, which is likely to drive some combination of price increases and cost reduction measures. Even if warnings of layoffs don’t come to pass, hiring faces stiff headwinds and, anecdotally, some firms are looking to reduce permanent headcount through attrition.

“Despite the challenging jobs outlook and ongoing debate around the merits of working from home versus the office, we are not seeing any reversal in the prevalence of remote and hybrid job postings. Instead, the share of remote/hybrid postings remains around highs at almost 17%. Offering location flexibility remains a powerful attraction tool for those employers who are still looking to hire. At a time when competitors may be pushing in the other direction, offering flexibility spells an opportunity to secure top talent.”

Blip or productivity gain?

Nye Cominetti, principal economist at the Resolution Foundation, said: “Britain’s jobs market has been in decline throughout the second half of last year, mirroring the UK’s wider economic performance, with the number of employees have fallen consistently since May.

“But these sobering economic trends have yet to materialise in workers’ pay packets. After decades of stagnation, 2024 was strong – real wages had already risen by a healthy 2.2 per cent by November last year – making it stronger, the best year for wages since 2005.

“This unexpectedly strong pay growth could just turn out to be a blip, or reflect an unmeasured productivity gain. The more likely explanation though is that private sector workers are trying harder to catch up with the public sector, and rebuild their pay packets after the high inflation of the past three years.

“This is great news for workers, if they can get a job. But it’s less welcome for the Bank of England as it muddies the picture over whether or when to reduce interest rates.”

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