Pay growth slowed less than expected in December as workers continued to bid up their wages amid skills shortages and a record number of people with long-term sickness.
The Office for National Statistics (ONS) said annual growth in regular earnings, excluding bonuses, was 6.2% in October to December 2023, while pay rises including bonuses was 5.8%.
City economists expected average earnings in the UK to drop significantly in the three months to December to 6% excluding bonuses and 5.6% including bonuses.
The modest fall will pose a dilemma for the Bank of England, which has signalled that pay rises need to moderate before it cuts interest rates.
After wages were adjusted for inflation, the ONS said workers enjoyed a fourth month of real wage increases. Total pay rose on the year by 1.6% above the consumer prices index and regular pay rose on the year by 1.9% in October to December 2023.
The Bank’s decision on when to cut rates will be made more difficult by a fall in job vacancies for an 18th consecutive month and a slowdown in the growth of employment, which indicate the labour market weakened in the last months of 2023.
Liz McKeown, the director of economic statistics at the ONS, said: “It is clear that growth in employment has slowed over the last year. Over the same period the proportion of people neither working nor looking for work has risen, with historically high numbers of people saying they are long-term sick.”
Jake Finney, an economist at the business advisory firm PwC UK, said the consecutive falls in the vacancy rate showed the heat was being taken out of the labour market.
“However, the lingering concern for the Bank of England will be that the labour market has not cooled sufficiently to achieve a sustainable return to the 2% inflation target. This remains one of the key barriers to the base rate cut in May that markets are currently expecting,” he said.
The chancellor, Jeremy Hunt, said: “It’s good news that real wages are on the up for the sixth month in a row and unemployment remains low, but the job isn’t done. Our tax cuts are part of a plan to get people back to work so we can grow the economy – but we must stick with it.”