High wage growth continues to be a “mainstay” of the UK economy, but experts say that the full impact of UK economic reality is yet to materialise.
Median monthly pay increased by 5.6 percent in December 2024 compared with December 2023, according to the latest ONS data.
The unemployment rate was 4.4 percent in September to November 2024, up 0.5 percentage points on the previous year.
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.”
He said future pay growth was 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.
“With vacancies falling and unemployment continuing to edge up even before the impact of the increases to employer national insurance contributions have taken effect, 2025 is likely to be a challenging year for many job seekers.”
Cockett said it was “crucial” that the government consults fully on the Employment Rights Bill currently progressing through parliament, to prevent changes undermining future job opportunities.
Pay growth ‘a blip’?
Britain’s jobs market was in decline throughout the second half of last year, according to Resolution Foundation principal economist Nye Cominetti. He said this mirrors the UK’s wider economic performance, while 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 percent 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.”
Cominetti said: “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.”
Job vacancies/unemployment paradox
Julia Turney, head of platform and benefits at consultancy Barnett Waddingham, dubbed today’s unemployment figures “a sobering reminder that we still face a significant uphill climb”.
“Businesses across the country are grappling with the impending impact of recent policy changes, including increased labour costs. But perhaps most concerning is the glaring paradox between high numbers of job vacancies and soaring unemployment.” she said. “This demands urgent action to bridge the gap and support both those out of work and those struggling to stay employed.”
She said the government still had work to do to fix the country’s long-term sickness problem. “While there are some potential ‘irons in the fire’ with the government’s recent ‘Get Britain Working’ whitepaper and £24 million investment to tackle ill health and inactivity, ultimately the proof will be in the action that is taken to achieve this – not just empty or vague commitments.
Hiring ‘recession’ to continue
Michael Stull, director at ManpowerGroup UK, said: “After five years including a two-year period of record highs, job openings have almost dropped below pre-pandemic levels. Of course we’d like to see these levels plateau alongside the unemployment rate which has risen slightly by 0.1 percent this month, but unfortunately we haven’t seen the full impact of employers cutting down costs yet. Employer national insurance increases and threshold changes won’t come into effect until April meaning it’s probable the UK’s hiring recession is going to continue for some time yet.”
Stull added that despite the gloom pay growth is improving, while inactivity has decreased slightly again, which he welcomed. “Over the medium-term businesses will need to invest in boosting skills and productivity by adapting to the new realities of the market. We can’t fully rely on the ONS labour market data as we have done before because of work underway to address its accuracy. This makes how the Bank of England reacts to the labour market much less predictable each month and it emphasises the need to closely monitor multiple data sources for signs of employment trends.”
He pointed to the a sign of “possible green shoots” in the ManpowerGroup’s 2025 Global Talent Shortage Survey, which was also released today. It suggests the UK skills gap may have peaked – at least for the time being.
Stull added that while a narrowing of the gap is positive, most organisations will need to keep working extra hard to reduce the gap further.
“The UK’s skills shortfall is higher than the global average (reported by 76 percent vs 74 percent of employers respectively) and where upskilling and recruiting is concerned, businesses will need to intensify the resilience they’ve displayed in recent times. This means some leaders may be inclined to take more risks this year to fire up the economy again, and those who can afford to do so will likely reap the rewards.”
