Wage growth slows as UK job market begin to stall

Wage growth slowed again in the UK jobs market but is still outpacing price rises, official figures show.

Pay growth, excluding bonuses, fell sharply from 7.3% to 6.6% in the three months to November.

There are also signs the jobs market is stalling, with the number of vacancies dropping for the 18th time in a row.

Retailers reported the sharpest fall in vacancies despite the sector heading towards the key Christmas trading period.

Several big recruitment companies have recently warned that the jobs market was slowing. Page Group, Hays and Robert Walters said confidence was weak among employers, with Page pointing out that the UK was its worst-performing market with profits down by around a fifth.

Between October and December, the estimated number of vacancies in the UK fell by 49,000 to 934,000, according to the Office for National Statistics (ONS).

But vacancies still remain above levels seen before the Covid pandemic.

Grant Fitzner, chief economist at the ONS, told the BBC’s Today programme there were signs the labour market had been “softening somewhat in recent months”, adding that the number of employers or businesses reporting recruitment difficulties had “fallen significantly over the past year”.

Yael Selfin, chief economist at accountancy firm KPMG UK, said slowing pay growth signalled “further weakness for labour market ahead”.

“The unique circumstances which fuelled pay growth, including strong demand for workers and higher pay demands to keep pace with the sharp rise in the cost-of-living, have receded in recent months,” she said.

Ms Selfin added job vacancies were expected to fall further, which could lead to pay growth falling towards 2% by the end of the year. “This will likely bolster the case for interest rate cuts later this year,” she said.

The Bank of England raised interest rates a number of times in a bid to tackle inflation, though has held them at 5.25% – a 15-year high – in recent months.

Inflation has fallen sharply and financial markets, as well as some economists, have suggested the Bank could cut interest rates soon.

But the Bank will look closely at the fact wage growth is outpacing price rises, and consider whether an interest rate cut could fuel inflation, which is at 3.9%, almost double the Bank’s 2% target.

Chancellor Jeremy Hunt said with inflation falling it was “heartening to see real wages growing for the fifth month in a row”.

The latest figures showed that the unemployment rate was largely unchanged at 4.2%.

But Mr Fitzner said: “It is worth pointing out that although we haven’t seen much change in the unemployment rate in recent months, it is higher than it was this time last year, so there has been some softening in the labour market as reflected by the unemployment rate and reflected by job vacancies.”