Uk pay growth has dropped to its weakest rate in more than five years, new official figures show, sharpening the focus on the Bank of England’s next interest-rate decision. Earnings excluding bonuses rose 3. 8% annually in the November-to-January period, down from 4. 2% previously, while unemployment held steady at a near five-year high of 5. 2%. The Office for National Statistics said payroll employment rose last month, even as the broader labour-market picture remained broadly flat.
Uk labour market snapshot: slower pay, steady unemployment, small payroll lift
The latest data place a clear marker on the wage trend: earnings excluding bonuses increased at an annual rate of 3. 8% in the November-to-January window, a slowdown from the prior 4. 2% reading. The unemployment rate was unchanged at 5. 2%, which the Office for National Statistics described as near a five-year high.
There was also an increase in the number of workers on payrolls last month. The ONS emphasized that the overall labour market picture has been “broadly flat, ” signaling limited momentum as the year began.
These figures arrive directly ahead of the Bank of England’s Monetary Policy Committee meeting, where the decision on interest rates is expected to keep borrowing costs unchanged.
Immediate reactions from ONS and economists ahead of the Bank of England meeting
Liz McKeown, Director of Economic Statistics at the Office for National Statistics, said: “Labour market conditions were little changed at the start of the year. The number of workers on payroll rose slightly in the latest month but, overall, the recent picture has been broadly flat. ”
Yael Selfin, Chief Economist at KPMG UK, said an interest-rate cut on Thursday is unlikely. “Priorities have shifted, with MPC members set to turn their attention to the new upside risks to the inflation outlook, ” she said. “This could see interest rates staying higher for longer, raising the prospect of a more pronounced loosening in the labour market over the coming months. ”
Selfin added that even if inflation were to be pushed higher by the Middle East conflict, she does not expect a surge in pay demands, arguing: “Demand for labour is weak, which should curtail workers’ bargaining power and limit the scope for a pick-up in wage growth. ”
Ashley Webb, UK economist at Capital Economics, pointed to the payroll rise as a sign the labour market may be stabilizing in one area, saying the increase in February’s payroll numbers suggested “the worst of the falls in employment due to the rise in labour costs in April 2025 are in the past. ” Still, he cautioned that while there were some “green shoots of a recovery, ” the labour market was “still weak” ahead of the outbreak of the Middle East conflict. “It will probably only get weaker as higher energy prices prompt firms to shed headcounts further, ” Webb said.
Quick context: inflation and a shifting rate-cut debate
Despite the slowdown in pay growth, wages are still rising faster than price increases. Inflation fell to 3% in January, although the outbreak of the US-Israeli war with Iran has led many analysts to expect inflation to pick up in the months ahead.
What’s next for Uk rates and the labour market
The immediate focus is the Bank of England’s Monetary Policy Committee decision, expected to keep the cost of borrowing unchanged, as analysts weigh the inflation outlook against a labour market that the ONS says is broadly flat. Attention will also remain on how higher fuel and energy costs feed through to inflation and hiring decisions, with economists flagging the risk of further weakening in jobs even as payrolls showed a recent uptick. For Uk households and employers, the next developments will hinge on whether the inflation risks identified after the Middle East conflict keep rates higher for longer and whether that translates into a more pronounced loosening in the labour market in the months ahead.
