UK pay growth accelerates as real wages climb, fuelling BOE concerns

UK pay growth rose 6% at the end of 2024, outpacing inflation and lifting real wages by 3.4%. Find out what this means for workers, the jobs market, and the Bank of England’s next move. Read more: UK pay growth accelerates as real wages climb, fuelling BOE concerns

Feb 18, 2025 - 14:00

UK pay growth accelerates as real wages climb, fuelling BOE concerns

Pay growth in Britain picked up pace at the end of last year, delivering welcome news for employees but posing a fresh dilemma for the Bank of England.

Newly released data from the Office for National Statistics (ONS) shows that total pay climbed by 6% year on year in the final quarter of 2024—up from 4.4% in July to September—slightly surpassing economists’ forecasts.

Regular pay (excluding bonuses) grew by 5.9% in October to December, having stood at 4.9% in the preceding three-month period. Crucially, both measures outstripped inflation, lifting real wages by 3.4% over the same timeframe. While this uptick will hearten many households, it may fuel lingering anxieties at the Bank of England, which cut interest rates earlier this month but remains wary of ongoing inflationary pressures.

According to the ONS, “Growth in pay, excluding bonuses, rose for a third consecutive time, with increases seen in both the private and public sector. After taking account of inflation, real pay growth also increased slightly.”

The latest jobs report provides a mixed picture. Employment for those aged 16 to 64 edged up to 74.9%, while unemployment reached 4.4%, also ticking higher compared to the same period last year. Meanwhile, the economic inactivity rate fell to 21.5%, suggesting some individuals have returned to the workforce. The number of people claiming unemployment-related benefits in January 2025 rose to 1.75 million, up both monthly and annually.

Economists had warned that rising borrowing costs might dampen wage growth, yet strong demand for labour, coupled with low unemployment, has underpinned earnings. After pushing interest rates to a 16-year high, the Bank of England reduced its base rate by 25 basis points this month, to 4.5%. Further cuts are anticipated later in the year. However, if wage growth continues to surpass inflation, the Bank may find itself under renewed pressure to strike a delicate balance between stimulating growth and taming prices.