UK economy: Wage growth was twice as high in Britain compared to the US

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Pay pressures remain far more prevalent in the UK than in either the US or the eurozone, according to new figures which point to the continued presence of inflationary dynamics in the economy.

Indeed’s wage tracker showed that pay growth in the year-to-December averaged 6.1 per cent.

This was comfortably ahead of the 3.1 per cent seen in the US and the 4.1 per cent averaged across the eurozone. “The UK has sustained a much higher rate of wage growth, despite a cooling labour market,” Indeed said.

The figures will reinforce concerns that high wage growth might prop up inflationary pressures in the economy in 2025.

The latest official figures, published earlier this month, showed that regular pay growth averaged 5.6 per cent in the three months to November, up from 5.2 per cent previously.

“Pay growth is now set to significantly exceed the BoE’s projection for Q4,” analysts at Goldman Sachs said.

However, economists are divided about the speed with which pay pressures will ease in 2025.

Some of the acceleration in pay growth during the previous quarter has come from statistical quirks, suggesting that the official figures may be overestimating the strength of pay pressures.

“The latest data have been distorted by compositional effects…Wage growth is likely to cool notably this year,” analysts at the US investment bank said.

The labour market has also been loosening in recent months in response to the range of measures announced in the Budget.

The most recent purchasing managers’ index, for example, showed that businesses were cutting roles at the fastest pace since the financial crisis, excluding the pandemic.

“An uptick in the unemployment rate is likely to push down on pay growth,” the analysts said.

But Rob Wood, chief UK economist at Pantheon Macroeconomics, said growth in earnings was “surprisingly strong…even accounting for statistical noise”.

Wood expects pay pressures to ease only “gradually” throughout the year. He pointed to the Bank of England’s own decision maker panel, which indicates wages will still grow around four per cent.

“Pay growth is likely to remain strong in the near term,” he said.