UK WAGE growth slowed to its lowest level in five years in the three months to January, according to official data. The figures also indicated that weakness in employment may have stabilised before the start of the war in the Middle East.
The data would typically support expectations of interest rate cuts by the Bank of England. However, the central bank is expected to signal at 1200 GMT that it is waiting to assess the impact of the war on Britain’s economy before making its next decision.
Yael Selfin, chief economist at KPMG UK, said Thursday’s data would not change the BoE Monetary Policy Committee’s immediate stance.
"Priorities have shifted, with MPC members set to turn their attention to the new upside risks to the inflation outlook," she said. "This could see interest rates staying higher for longer, raising the prospect of a more pronounced loosening in the labour market over the coming months."
Data from the Office for National Statistics last week showed zero economic growth in January. At the same time, rising oil prices mean an expected fall in inflation towards the 2 per cent target in April may not last as long as previously expected.
Slowest pay growth since 2020
The Office for National Statistics said regular earnings, excluding bonuses, increased by 3.8 per cent in the November to January period. This was the smallest rise since the three months to November 2020 and lower than 4.1 per cent in the final quarter of 2025.
Economists polled by Reuters had expected regular pay growth of 4.0 per cent. Total pay growth, including bonuses, also slowed to 3.9 per cent.
The unemployment rate stood at 5.2 per cent, unchanged, and the highest since the COVID-19 period. This was below the Reuters poll forecast of 5.3 per cent.
Unemployment among 16 to 24-year-olds declined to 16.0 per cent from 16.1 per cent in the final quarter of 2025.
Businesses hire more staff
Separate tax office data released on Thursday showed payrolled employment increased by a provisional 20,000 between January and February.
January payroll figures were revised to show a rise of 6,000, compared with an earlier estimate of a fall of 11,000.
This marks the first time since May 2024 that payrolled employment has increased for three consecutive months.
"Today's labour market data will make for some positive reading. After nearly a year of disappointment, signs of stabilisation are emerging," Sanjay Raja, chief UK economist at Deutsche Bank, said.
The Bank of England had been assessing whether inflation pressures in the labour market or weaker hiring posed a bigger risk to the economy.
New inflation pressures have emerged due to higher energy prices following the war in the Middle East.
The BoE is expected to keep borrowing costs unchanged at the end of the Monetary Policy Committee’s March meeting, which had earlier been expected to result in a quarter-point rate cut.
Private sector annual regular wage growth slowed to 3.3 per cent in the three months to January from 3.4 per cent in the previous period, according to ONS data. This is a measure closely tracked by the BoE.
Last month, the BoE said pay growth needs to be around 3.25 per cent to keep inflation at its 2 per cent target.
Deutsche Bank’s Raja said the figures showed wage growth was slowing more than expected, which could ease concerns about inflation linked to higher energy prices after the U.S.-Israeli war on Iran.
"This, we think, can allow the MPC to remain cool-headed as we brace for another inflation wave - at least for now," he said.
(With inputs from agencies)
