UK wages continue to outpace inflation

Average wages are continuing to outpace inflation with pay packets rising for both the public and private sector workers, official figures show.

Pay, after taking into account the pace of price rises, rose 3.4% between October and December compared with the same period a year ago, according to the Office for National Statistics (ONS).

The UK's unemployment rate remained unchanged at 4.4%, although the ONS has advised that its jobs figures should be treated with caution because of low response rates to its employment survey.

The figures follow warnings from businesses that they are planning to cut workforces and raise prices ahead of higher employment costs in April.

Employers have raised concerns that paying more in National Insurance, along with minimum wages rising and business rates relief being reduced, could hit pay rises going forward and also affect investment.

Yael Selfin, chief economist at KPMG UK, said the latest employment figures indicated that hiring intentions had "weakened significantly".

She said the hospitality and retail sectors were expected to be "disproportionately affected" by the incoming cost hikes due to them employing a higher proportion of lower-wage workers.

"There is a limit to how much additional cost business can absorb without employment and investment opportunities being damaged," added Jane Gratton, deputy director Public Policy at the British Chambers of Commerce said.

"The government must do all it can to minimise costs for business and ensure they have access to a skilled and healthy workforce."

The government has repeatedly said its Budget measures will deliver stability businesses need to invest and grow.

Without taking account of inflation, the ONS said annual pay growth, excluding bonuses, was 5.9% from October to December. Earnings growth for the private sector was 6.2%, while for the public sector it was 4.7%.

The UK's inflation rate, which measures the rate consumer prices rise at over time, was 2.5% in the year to December, but is predicted to rise again as a result of higher energy and water bills.

Ms Selfin said she expected a "steady downward trend" in pay growth in the coming months.

"Demand for staff has declined, with vacancies remaining at close to pre-Covid levels. Additionally, there has been a marked improvement in the availability of workers," she added.

Total estimated vacancies were down by 110,000 (11.8%) from a year ago, according to the ONS, but remain above pre-Covid levels.

Some economists suggested that a small rise private sector wages, which are closely watched by the Bank of England when making decisions on interest rates, would not result in policymakers changing their approach to "gradual" reductions in borrowing costs.

Earlier this month the Bank cut interest rates to 4.5% from 4.75%.