Pay growth slowed less than expected in December, prompting predictions the Bank of England could start cutting interest rates later than previously expected.
Earnings growth, excluding bonuses, fell only modestly to 6.2% in October to December 2023 from a revised 6.7% in the previous three months, as workers continued to bid up their wages amid skills shortages and a record number of people with long-term sickness.
City traders, who had expected regular pay increases to drop more sharply to 6%, trimmed their forecasts of how much the Bank would cut rates this year.
Policymakers at the Bank have signalled that pay rises will have to moderate before it cuts interest rates, otherwise rate cuts would risk allowing inflation to return later in the year.
UK rate futures, which are used to gauge the likelihood of interest rate cuts, predict a reduction of just 0.69 percentage points this year, down from expectations last year that the central bank was poised to make cuts totalling 1.3 percentage points in 2024.
George Buckley, the chief UK economist at Nomura, said a first cut in March or May, as financial markets previously expected, was now unlikely and that he was forecasting a delay until August.
Office for National Statistics (ONS) figures on Wednesday showed annual growth in regular pay rises including bonuses was 5.8% in October to December 2023. City traders had expected this figure would fall to 5.6%.
After wages were adjusted for inflation, the ONS said workers enjoyed a sixth month of real wage increases. Total pay rose on the year by 1.6% above the consumer prices index and regular pay rose on the year by 1.9% in October to December 2023.
The Bank’s decision on when to cut rates will be made more difficult by a fall in job vacancies for an 18th consecutive month and a slowdown in the growth of employment, which indicate the labour market weakened in the last months of 2023.
A range of business surveys have shown annual pay rising in sectors with severe skills shortages. The jobs website Indeed said its employment tracker found that lower-paid categories such as childcare, cleaning and retail were among the most affected.
It said many of these sectors were increasing pay before an increase of almost 10% in the national living wage due in April.