Pay growth continued to outpace inflation at the end of 2023, but the rate of growth is slowing, official figures have revealed.
The annual increase in regular weekly earnings without bonuses was 6.2% in October to December 2023, according to the Office for National Statistics’ February labour market figures. But when adjusted for inflation using the CPIH measure, regular pay rose by 1.8%.
Taking bonuses into account, annual earnings increased by 5.8% – or 1.4% when adjusted for inflation.
Average weekly earnings were estimated at £669 for total earnings (including bonuses) and £626 for regular earnings in December 2023.
February 2024 labour market figures
Signs that pay awards are falling in January
The wholesale, retail, hotels and restaurants sector saw the largest annual increase in regular weekly earnings, at 7.2%. Manufacturing (6.9%) and finance and business services (6.7%) also enjoyed strong pay growth compared with the same period in 2022.
However, the ONS said that pay growth in the short term has not been as strong as was seen earlier in 2023.
Annual average regular earnings growth for the public sector was 5.8% in October to December 2023, not as high as it has been in recent periods but still relatively strong. For the private sector this was 6.2%.
Ben Harrison, director of the Work Foundation at Lancaster University, said the figures showed the cost-of-living crisis was still a reality for many workers.
“After record pay increases in September 2023, workers are now seeing only modest real wage growth of 1.4%. This underpins why the OBR is forecasting living standards will be 3.5% lower in 2024-25 than before the pandemic,” he said.
Jack Kennedy, a senior economist at job site Indeed, said: “While the latest figures show a further easing of pay pressures as the labour market softens, it remains well above the Bank of England’s comfort zone.
“Indeed’s Wage Tracker shows that advertised pay for new hires rose by 6.4% year-on-year in January. Though down from 6.6% in December, UK wage growth remains well above that in the US and euro area. That underlines the challenge facing Threadneedle Street and why we may be waiting longer for UK interest rate cuts than from the Fed and ECB.”
This underpins why the OBR is forecasting living standards will be 3.5% lower in 2024-25 than before the pandemic,” – Ben Harrison, Work Foundation
Recruitment and Employment Confederation chief executive Neil Carberry said: “There will be a lot of focus on the pay figures in this release, as pay growth did not fall back as much as expected. But with many wage settlements due to take place in the spring – and those from last year still in these figures – we will need to wait for more accurate data on 2024 trends. The significant rise in the National Minimum Wage will underpin wage growth to some extent this spring, and many companies report that this second significant rise in two years is proving challenging.”
Pay predictions for 2024
The ONS figures broadly align with data from reward consultancy Paydata, which show the median pay award in December 2023 was valued at 5.0%.
Paydata’s survey of around 400 employers in January found that the most commonly predicted pay award for 2024 is 5%, although the median is 4.5%.
Managing director Tim Kellett said: “Over the autumn I was unsure whether we would see more 4% quoted 2024 increases by the start of the new year, but I have been proved wrong. Whilst there are more 4% 2024 increases than last year’s predictions, by far the most common 2024 increase is still 5%. This may be because inflation took it’s time to reduce, and over the autumn many employers said to us that the labour market was still competitive.
“As a result, for many employers, 2024 pay awards have appeared to maintain a similar level to 2023 awards. Whilst overall, awards are perhaps not quite as high as last year, we have not seen a significant shift downwards yet. And with most awards in our database being timed in the first four months of the year, I’m not sure we will see a significant shift in these figures later in the year.”
Labour market still weak
The February 2024 labour market figures also show that vacancies continued to decline in November 2023 to January 2024, with the estimated number falling to 932,000, around 26,000 less than the previous quarter and 209,000 less than the previous year.
Health and social work activities saw the largest annual decrease in vacancies, closely followed by accommodation and food services.
The reduction in workers is compounding labour supply difficulties and limiting UK growth,” – Jon Boys, CIPD
The ONS is still reporting experimental data after finding its labour force survey estimates were not as accurate as they had been previously, due to smaller sample sizes.
It said the unemployment rate decreased to 3.8%, returning to the rate seen in October to December 2022. Meanwhile the employment rate rose slightly to 75.0%, while economic inactivity rate (21.9%) was largely unchanged compared with the previous year.
However, the number of employees on UK company payrolls increased by 31,000 between November and December 2023, and was 1.3% higher than a year earlier.
The early estimate of payrolled employees for January 2024 increased by 48,000 (0.2%) on the month and increased by 413,000 (1.4%) on the year to 30.4 million.
The CIPD’s senior labour market economist Jon Boys reiterated the HR body’s call for more government investment in addressing the UK’s ill health.
“A survey reweighting exercise by the ONS suggested that inactivity due to ill-health is higher than previously estimated. The reduction in workers is compounding labour supply difficulties and limiting UK growth. Breaking down barriers to working for people with health conditions must be a priority for policymakers and employers. It’s imperative to prioritise occupational health services, to prevent individuals from exiting the workforce prematurely,” he said.
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