Stubborn Pay Growth Challenges UK Labor Market Dynamics

Despite softening indicators in the UK job market, pay growth remained robust in late 2024, suggesting continued inflationary pressures. This aligns with expectations for Bank of England interest rate cuts amid rising unemployment and slowed economic growth, reflecting mixed signals about the UK's economic resilience.

Despite mounting signals of a cooling job market, British pay growth remained robust in the period leading up to November 2024. The data prompts questions about the trajectory of the Bank of England's interest rate decisions as they weigh inflationary pressures against broader economic indicators.

With private-sector pay experiencing a notable increase to 6.0% excluding bonuses, market expectations about a rate cut have not shifted notably. Analysts predict a reduction in the BoE's interest rate by 0.25 percentage points to 4.5%, with further cuts anticipated over the year.

In a contrasting development, surveys indicate a pessimistic outlook for employment following tax hikes for businesses. The unemployment rate edged up to 4.4%, and employer reports showed a significant drop in the number of employees. These mixed signals present a nuanced challenge for policymakers navigating the UK's economic landscape.

(With inputs from agencies.)