UK wage growth jumps, cementing gradual rate cut path

UK wage growth accelerated to an eight-month high, official data showed Tuesday, cementing analysts’ expectations that the Bank of England will take a gradual approach to cutting interest rates.

Annual growth in employees’ average regular earnings rose to 5.9 percent in the three months to the end of December, up from 5.6 in the same period to November, the Office for National Statistics said in a statement.

The ONS added that the unemployment rate remained at 4.4 percent to the end of December.

The data reinforced expectations that the Bank of England will not “deviate from its current gradual approach to interest rate cuts,” said Ashley Webb, UK economist at Capital Economics.

The BoE cut its key rate earlier in February for the third time in six months and signalled a careful approach to reducing rates further as it eyes US tariff threats and UK economic developments.

Tuesday’s figures come after UK businesses warned that the tax increases in Finance Minister Rachel Reeves’ maiden budget, set to take effect in April, could result in lower wages and reduced hiring, as companies look to claw back money.

“Hiring intentions have weakened significantly across the labour market and we expect this to persist over the coming months,” said Yael  Selfin, chief economist at KPMG UK.

“Today’s numbers indicate that economic momentum is continuing to slow, and the combination of weaker hiring, slowing pay growth, and fading business confidence could push the economy closer to a downturn,” added Richard Carter, analyst at Quilter Cheviot.