There has been a surge in the pace of wage growth but a rise in the unemployment rate, according to the latest official figures.
The Office for National Statistics (ONS) reported that both basic pay excluding bonuses, and average weekly earnings, rose at an annual rate of 5.6% in the three months to November.
That was up from a rate of 5.2% reported the previous month.
The ONS said the unemployment rate rose to 4.4% from 4.3%.
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The employment figures were the first to take in possible early reaction to the budget, and may suggest some employers were eager to retain key staff through strong pay awards while others sought to cut costs amid the tough outlook and ahead of looming tax rises.
HMRC payroll data and ONS survey data both pointed to lower employment.
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The report was released against a backdrop of recent financial market turmoil, partly linked to concerns over the state of the UK economy following the 30 October budget but mainly the potential impact of a fresh Donald Trump presidency.
Sterling has lost 12 cents versus the dollar since September while government borrowing costs have risen generally, placing a big strain on Chancellor Rachel Reeves’ spending rules and bringing her stewardship of the economy under greater focus.
Last Friday, following data showing weak retail sales during the crucial Christmas month, sterling fell again but on the back of growing expectations that the mounting evidence of a flatlining economy would give the Bank of England more room to cut interest rates.
Some market commentators, and even the Bank’s newest rate-setter, believe borrowing costs will be cut four times this year though the market has currently only fully priced in two reductions.
Investors currently see an 84% probability of a Bank rate cut at the next meeting on 6 February, from 4.75% to 4.5%.
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The last set of inflation figures, which showed a surprise easing in the headline figure, will have given the Bank some encouragement but economists see a rate back above 3% by April given expected increases in many costs, including energy and water bills, from that month.
While the budget tax measures on business sparked warnings of rising prices to offset billions of extra costs, it could also be the case that threatened hits to wages and jobs will help Bank policymakers make the argument for rate cuts.
Yael Selfin, chief economist at KPMG UK, said of the outlook: “We expect pay growth to trend downwards over the coming year, with the backdrop of slowing labour market activity.
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“Forward looking indicators suggest a significant weakening in hiring intentions due to the upcoming tax rises in April. We expect this to act as a headwind for labour market activity in the near term, likely translating into a small pick up in headline unemployment over the coming months. Nonetheless, once the impact of the budget passes together with the expected improvement in economic activity, conditions should stabilise in the labour market.
“Wage growth is expected to return closer to levels consistent with the inflation target this year, despite the recent increase. The rise in business costs due to the Budget measures should have a cooling effect on labour market activity and make higher wage settlements less likely. As a result, it is anticipated the Bank of England will opt for an interest rate cut next month, and two further rates cuts in 2025.”
