UK pay growth stagnates as firms predict slower wage rises ahead

Growth in pay awards by British employers stagnated during the three months to September and firms expect average wage rises to cool over the coming 12 months, according to a survey that added to signs that Britain’s labour market is softening.

Human resources data company Brightmine reported that the expected median pay award in the year ahead was 3 per cent, down from pay awards of 6 per cent in the same period in 2023, reflecting a sharp drop in inflation.

It said pay rises held at 4 per cent in the three months to September, the same as in the three months to August although it was lower than a 4.8 per cent increase in the second quarter.

“While pay awards are expected to decline in 2025, businesses are continuing to find creative ways to support their workforce, particularly by addressing skills shortages and retaining key talent,” said Sheila Attwood, senior content manager at Brightmine.

The latest figures chimed with Bank of England forecasts of slowing wage growth.

The BoE is monitoring the outlook for wages as it considers further interest rate cuts. The central bank is expected to reduce borrowing costs again on Nov. 7 after cutting rates for the first time in more than four years in August.

Governor Andrew Bailey earlier this month said that the central bank could move more aggressively to reduce borrowing costs if inflation pressures continued to weaken.

But BoE policymaker Megan Greene recently said she still believed the central bank should take a cautious approach due to the risk of longer-term inflation pressures.

Official data showed British inflation fell to a three-year low of 1.7 per cent in September while pay grew at its slowest pace in more than two years in the three months to August.

Brightmine said the median pay award in the public sector for the year to September stood at 5.5 per cent, the same as in August.

The September data was based on 64 pay awards covering 433,000 employees, while the year-ahead forecast was based on views from 289 organisations that represent nearly half a million employees.