Pay grows at slowest rate in more than five years

Pay has grown at its slowest rate in more than five years, according to the latest official figures.

Earnings – excluding bonuses – grew at an annual rate of 3.8% in the November to January period, down from the previous figure of 4.1%.

The unemployment rate remained unchanged at a near five-year high of 5.2%, the Office for National Statistics (ONS) said, but there was a rise in the number of workers on payrolls last month.

Despite the slowdown in pay growth, wages were still rising faster than the rate of price increases. Inflation fell to 3% in January, although the outbreak of the US-Israeli war with Iran has led many analysts to expect the rate to pick up in the months ahead.

Until the outbreak of the conflict in the Middle East there had been speculation the Bank might cut rates on Thursday, but the recent increase in the price of fuel and energy costs has now raised the possibility of rate hikes later this year.

Ahead of the Bank’s latest decision, Yael Selfin, chief economist at KPMG UK, said interest rates were likely to stay “higher for longer, raising the prospect of a more pronounced loosening in the labour market over the coming months”.

Liz McKeown, director of economic statistics at the ONS, said: “Labour market conditions were little changed at the start of the year.

“The number of workers on payroll rose slightly in the latest month but, overall, the recent picture has been broadly flat.”

The latest report from the ONS showed:

• Annual average earnings growth was 5.9% for the public sector and 3.3% for the private sector in the three months to January
• The number of job vacancies remains “largely stable”. Early estimates suggest the total dropped by 6,000 to 721,000 in the three months to February
• The number of payrolled employees in February rose by about 20,000 from the previous month, to 30.3 million.

Even though the conflict in the Middle East could be about to push up inflation, KPMG’s Selfin said she did not think this would lead to a surge in pay demands .

“Demand for labour is weak, which should curtail workers’ bargaining power and limit the scope for a pick-up in wage growth,” she said.

Ashley Webb, UK economist at Capital Economics, said the increase in February’s payroll numbers suggested that “the worst of the falls in employment due to the rise in labour costs in April 2025 are in the past”.

However, while he said the latest figures indicated there were some “green shoots of a recovery”, he added it also showed the labour market was “still weak” ahead of the outbreak of the Middle East conflict.

“It will probably only get weaker as higher energy prices prompt firms to shed headcounts further,” he said.