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Unemployment on the rise as wage growth jumps

Unemployment on the rise as wage growth jumps
Rosie Murray-West
Written By:
Posted:
21/01/2025
Updated:
21/01/2025

More people are without jobs but wage growth is rising, according to the latest Government figures.

The Office for National Statistics (ONS), which compiles official numbers on the economy for the Government, showed that both basic pay excluding bonuses and average weekly earnings rose at 5.6% in the three months to November.

The increase in wages is a rebound compared with August’s figure, when growth was at 3.9%.

Unemployment also rose slightly and is now at 4.4% compared with 4.3% previously.

Figures stoke inflation fears

The figures show that, for now, wage growth is higher than inflation, meaning that many of us feel better off.

Sarah Coles, head of personal finance at DIY investment platform Hargreaves Lansdown, added that while the wage growth was giving some employees extra money, “it could have a sting in the tail if it ends up fuelling higher inflation”.

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Experts said that, despite the steady employment figures, the increased growth in wages could lead to the Bank of England cutting rates more slowly.

Pierre Roke, analyst at Validus Risk Management, said the figures were unlikely to ease concerns over price rises, despite last week’s cooler-than-expected inflation data, which allayed market fears over price rises.

He added that wage growth could lead to a slower cycle of rate cuts if it persists.

“The UK is currently seeing a divergence in rate expectations, with the market pricing in fewer rate cuts than those signalled by the Bank of England. This gap is caused by lingering inflationary concerns – driven by higher wage growth, the potential impact of President Trump’s policies, or both,” he said.

Roke added that although the figures by themselves were unlikely to stop the Bank of England cutting rates in February, continued strong wage growth could lead to more drastic action.

Further unemployment coming

Experts also warned that unemployment is likely to continue to rise as National Insurance costs for employers will be increased from April, making staff more expensive.

Nicholas Hyett, investment manager at investment group Wealth Club, said: “The trend is not your friend here if you’re the Chancellor. Early estimates suggest the number of people in employment shrank by 47,000 between November and December. With the increase in National Insurance contributions – announced in the Budget – making workers more expensive from April, it’s a trend we wouldn’t be surprised to see continue for the next few months.

“That’s not to say that the UK faces a massive layoff – but if businesses decide not to replace leavers and don’t hire to expand, the unemployment number will grow all the same.”