“While unemployment rose to 4.4%, it remained fairly low in the three months to November. Pay growth ticked up to 5.6%, but this was largely due to base effects. We expect pay growth to trend downwards over the coming year, with the backdrop of slowing labour market activity.
“Forward looking indicators suggest a significant weakening in hiring intentions due to the upcoming tax rises in April. We expect this to act as a headwind for labour market activity in the near term, likely translating into a small pick up in headline unemployment over the coming months. Nonetheless, once the impact of the Budget passes together with the expected improvement in economic activity, conditions should stabilise in the labour market.
“Wage growth is expected to return closer to levels consistent with the inflation target this year, despite the recent increase. The rise in business costs due to the Budget measures should have a cooling effect on labour market activity and make higher wage settlements less likely. As a result, it is anticipated the Bank of England will opt for an interest rate cut next month, and two further rates cuts in 2025.”
