UK wage growth has continued to ease, offering some relief on inflation pressures but raising fresh concerns for workers as payroll numbers fall and hiring slows across key sectors. Official figures show average earnings growth slowed to 4.5% in the three months to November, down slightly from the previous period, reflecting a sharp cooling in private sector pay increases.
Data published by the Office for National Statistics highlights a clear divide between public and private sector earnings. Private sector wage growth slowed to 3.6%, the lowest rate seen in five years, while public sector pay rose by a markedly higher 7.9%. The ONS noted that the stronger public sector figure largely reflects the timing of pay awards being brought forward compared with last year.
For UK workers, this split matters. Private sector roles dominate employment across retail, hospitality, logistics, and services, all areas where hiring activity remains weak. The number of people on company payrolls fell by 135,000 over the year to November, despite the economy approaching the traditionally busy Christmas trading period. Shops, pubs, restaurants, and hotels recorded the sharpest declines.
Average earnings excluding bonuses also slowed slightly, easing from a 4.6% rise in the three months to October. While lower pay growth can feel uncomfortable for households facing ongoing cost pressures, economists say the trend may influence interest rate decisions in the months ahead.
Sanjay Raja, chief UK economist at Deutsche Bank, described the easing in wage growth as encouraging from a monetary policy perspective. Speaking to mainstream media, he noted that slower pay growth reduces inflationary pressure, allowing policymakers more flexibility as inflation moves closer to its 2% target.
Inflation stood at 3.2% in November, down from 3.4% the previous month. Lower wage growth typically reduces demand-driven price increases, which in turn affects how central banks set borrowing costs. The Bank of England has already cut interest rates six times since August 2024, most recently in December, when rates were reduced from 4% to 3.75%. Most economists expect rates to be held steady when policymakers meet in February.
Despite these easing inflation signals, the wider jobs picture remains challenging. The unemployment rate held at 5.1% between September and November, its highest level since early 2021. Provisional figures for December suggest a further monthly drop of 43,000 payroll jobs, although the ONS has cautioned that these early estimates may be revised.
Liz McKeown, director of economic statistics at the ONS, said job losses were “concentrated in retail and hospitality”, reflecting “ongoing weak hiring activity”. These sectors have traditionally relied on younger workers, yet unemployment among 16 to 24-year-olds remains elevated at 15.9%, close to a ten-year high.
Yael Selfin, chief economist at KPMG UK, warned that labour market pressures may intensify. Forward-looking surveys suggest employers plan to limit recruitment, with rising employment costs weighing on demand. Recent policy changes have increased National Insurance contributions for employers and lowered the earnings threshold at which those costs apply, adding further pressure to hiring decisions.
The government has also confirmed further increases to the minimum wage, with another rise scheduled for April. While higher minimum pay supports household incomes, it also raises operating costs for employers already facing tighter margins.
Alongside these changes, the government is seeking to support people back into work through the expansion of the WorkWell scheme. The programme, now extended by three years, provides access to physiotherapy, counselling, and workplace adjustments for disabled people and those with health conditions. Secretary of State for Work and Pensions Pat McFadden said the pilot scheme has already helped 25,000 people remain in or return to employment.
For UK workers, these developments underline a period of adjustment. Slower pay growth may help stabilise prices and borrowing costs, but falling payroll numbers and subdued hiring signal ongoing uncertainty, particularly in consumer-facing industries. As policymakers balance inflation control with employment stability, the months ahead will be critical in shaping job security and earnings prospects across the country.
At The Workers Union, the focus remains on ensuring UK workers stay informed, prepared, and supported as economic conditions evolve, with clear guidance and practical insight at the heart of everything we do.
