UK wage growth edged lower towards the end of last year, which is expected to reassure Bank of England policymakers and leave the door open to further interest rate cuts in 2026.
The unemployment rate held at 5.1% in the three months to November, according to figures released by the Office for National Statistics on Tuesday, amidst continued weakness in retail and hospitality hiring. Single-month unemployment in November rising to its highest since Covid at 5.3% and the second highest in 2015.
Average pay excluding bonuses was up 4.5% year-on-year, down slightly from 4.6% in the previous quarter and marking the slowest pace since April 2022.
The number of payrolled employees declined by 43,000 in December, the sharpest monthly drop since late 2020, at the height of the pandemic.
The ONS said the decline was concentrated in sectors such as wholesale, retail and hospitality, which continue to face subdued demand and elevated employment costs.
Despite the broader weakness, job vacancies rose by 10,000 to 734,000 in the three months to December, the first meaningful increase since mid-2022.
Liz McKeown, ONS director of economic statistics, said: “The number of employees on payroll has fallen again, with reductions over the last year concentrated in retail and hospitality, and reflecting ongoing weak hiring activity.”
Private sector wage growth slowed to 3.6%, its lowest level in five years, while public sector pay remained elevated, partly due to the timing of pay awards.
Sanjay Raja, chief UK economist at Deutsche Bank, said: "The labour market remains fragile. Hiring demand is weak. Pay growth is slowing.
"But there are some green shoots in the labour market. We will need to see more evidence of this, however, to be convinced that the labour market is turning a corner."
For the BoE's monetary policy committee, he said the slowing in private wage growth was a "positive piece of news".
"The easing in wage inflation will give many on the MPC some comfort that pay growth is moving closer to more target-consistent levels. Further rate cuts seem inevitable, in our view – though questions around timing of rate cuts will only increase from here."
Rob Wood, chief UK economist at Pantheon Macroeconomics, said unemployment holding steady, payrolls falling more than expected and wage growth slowing, "will keep the MPC on track to cut rates again in April, but gives rate setters no need to urgently ease policy", with the next meeting coming in early February.
"The Budget circus crescendo in November continued to weigh on job growth in December, while wage growth slowing too will be food for the MPC doves. But there are plenty of details suggesting a stabilising, rather than still deteriorating, labour market."