Wages run hotter – the good news and the bad news
The ONS has released employment and wage data covering the year to September-November: UK Labour Market January 2025 – Office for National Statistics
Sarah Coles, head of personal finance, Hargreaves Lansdown: “Wages outpaced inflation again, running hotter than they have for three and a half years. We’re enjoying a smidge of extra wiggle room in our budgets right now, but it could have a sting in the tail if it ends up fuelling higher inflation.
Wages are rising faster than a month ago – and well ahead of inflation. Pay hasn’t put this much clear blue water between itself and inflation for around three and a half years, so the difference is palpable. It’s leaving us with more money at the end of the month: this week’s new HL Savings & Resilience Barometer puts this at an increasingly healthy average of £136 – rising to £726 among the highest fifth of earners. It’s a major reason why we’re saving more at the moment, and building our short-term resilience. Measures in the Budget should keep wages rising for a while longer, given the public sector wage rises and minimum wage hikes on the cards in April.
However, while higher wages may be fuelling the feel-good factor right now, that feeling may not last. There’s always the risk that if wages keep running hot, it will mean higher inflation for longer, which will put pressure on the Bank of England to push rate cuts further down the road. On balance, the lack of growth in the economy, and a month of falling inflation, are likely to mean a rate cut in February is still on the cards. However, the Bank of England will be watching for any signs that higher wage bills will force employers to put their prices up.
Meanwhile, not everyone is getting to enjoy the benefits of better pay, because unemployment is rising. Uncertainty around the Budget, and some of the bad news around rising taxes for employers, could be playing a part in keeping a lid on employment, which fell over the quarter.
There’s also the fact that the good news on wages may end up being relatively short-lived. There’s a risk that businesses will be under pressure to cut costs in the face of higher employers’ National Insurance bills, so will cut back on both staff and wage rises as we go further into 2025.
It means we may well need to call on our emergency savings funds. The HL Savings & Resilience Barometer has good news on that front, because the level of savings has grown over the past six months, and 65% of people have savings to cover at least three months’ worth of essential spending – the minimum recommended by advisers.
For those sitting pretty on a decent pot of savings, it’s worth finding a rewarding home for them. At the moment, it’s still possible to make more than 4.5% on easy access savings from online banks and savings platforms. You work hard enough for your money, so your money should be working harder for you. For those with a shortfall, don’t panic, just put away whatever you can afford right now. You’ll be grateful for every penny if tougher times are around the corner.”
Other data from the release
- The unemployment rate was 4.4% – up over the year and the quarter and above pre-pandemic levels. The employment rate was 74.8% – largely unchanged over the year but down over the quarter, and below pre-pandemic levels.
- Economic inactivity was 21.6% – down over the year and the quarter, but still above pre-pandemic levels.
- Redundancies were 3.8 per thousand – up over the year and the quarter.
- Vacancies fell by 24,000 in October-December to 812,000 – marking 30 months of consecutive falls. They’re still higher than before the pandemic.
