UK Wage Growth Slows to Five-Year Low

UK wage growth slowed to its weakest pace in over five years, rising by just 3.8% in the three months ending January, according to official data from the Office for National Statistics (ONS). This marks a significant drop from the previous quarter's 4.2% and falls short of economists' expectations.

The slowdown in wage growth is attributed to a reduction in public sector wages and delayed wage settlements, as reported by TimesLIVE. The unemployment rate remained steady at 5.2%, its highest level since the COVID-19 pandemic period. However, youth unemployment among 18-24 year olds rose to an 11-year high of 16.0%, according to data from Sky News.

The Bank of England (BoE) is widely expected to keep interest rates on hold at its upcoming meeting due to rising inflation concerns stemming from the Middle East conflict, as reported by BBC and The Guardian. Analysts had previously anticipated a rate cut, but the recent surge in oil prices has shifted focus to managing inflation risks.

Despite the slowdown in wage growth, there are some signs of stabilization in the labor market. Pay-rolled employment rose by 20,000 between January and February, marking the first consecutive monthly increases since May 2024, according to TimesLIVE. However, job vacancies fell by 6,000 to 721,000, indicating a cooling hiring environment.

The BoE's decision will likely hinge on balancing the risks of lingering inflation and a weakening labor market. Economists predict that wage growth needs to slow further to around 3.25% to keep inflation at its 2% target, as noted by Deutsche Bank's Sanjay Raja in TimesLIVE.

UK government borrowing rose unexpectedly to £14.3bn in February, the second highest level for that month since records began, according to official figures from the Office for National Statistics (ONS). This borrowing was £2.2bn higher than in February last year and significantly exceeded economists' expectations of £8.8bn. The increase in government tax receipts was outweighed by a rise in spending and the timing of government debt interest payments, as reported by BBC. Across the 11 months of the financial year to February, government borrowing was down.

The figures, which measure the difference between total public sector spending and tax income, are for the month before the start of the US-Israel war with Iran. Government borrowing costs have jumped since the conflict began, making it harder for the government to offer support for rising energy bills. Ruth Gregory, deputy chief UK economist at Capital Economics, said there is doubt about the scope for a large-scale fiscal support package like that seen in 2022, even in more extreme scenarios where the Middle East conflict escalates further.

The Treasury stated it had the 'right economic plan' and added that they are better prepared for a more volatile world. Nabil Taleb, economist at PwC UK, noted that the increase in borrowing for February partly reflects the timing of payments, with some interest due at the end of January falling into February because of the intervening weekend.

The leap to the second highest borrowing for February on record, a number not adjusted for inflation, is a sharp change from the record surplus in January. Lindsay James, investment strategist at Quilter, said the about-turn in public sector finances was 'largely due to record levels of interest payable, highlighting the sheer scale of debt interest the government is now facing'. She noted there were some 'glimmers of hope that government borrowing was beginning to be reined in as tax rises helped to create the largest January surplus on record'.

The ONS provisionally estimated debt to be at 93.1% of the size of the UK economy at the end of February 2026, which means it remains at levels last seen in the early 1960s.