In the three months leading up to April 2025, typical annual pay settlements in the UK saw a slight decline, according to data released on Monday. Despite this decrease, the rise in the minimum wage had a significant impact on the pay of lower-income workers, which is likely to be welcomed by the Bank of England (BoE). The BoE has been forecasting a slowdown in pay growth, as it seeks to achieve its inflation target of 2%.
Decline in Typical Pay Settlements
Industry data from Incomes Data Research (IDR) revealed that the median pay deal for private-sector workers dipped to 3.4% in the three months to April, down from 3.5% in the previous quarter. This slight decline comes amid efforts by the Bank of England to cool down wage inflation, which is seen as a crucial factor in bringing down consumer price inflation.
However, there was an increase in the number of employers offering higher pay settlements. The proportion of businesses offering pay increases of more than 6% jumped to 11%, up from just 2% in March. This is largely due to a 6.7% increase in the national minimum wage, which rose to £12.21 ($16.51) per hour in April. This boost is expected to benefit many lower-paid workers across the country.
Impact of National Insurance Increase
Another factor contributing to the changing pay landscape is the rise in national insurance contributions for employers, which began in April. The increase in these contributions has made some businesses more hesitant about hiring new staff, potentially affecting overall employment levels.
Pay Settlements Across Sectors
For the entire UK economy, pay settlements remained unchanged at 3.2%. However, within specific sectors, there were notable differences. For example, pay increases in the not-for-profit sector averaged 2.7%. Public-sector pay deals were not significantly represented in the sample, which covered 1.3 million workers, primarily at large private-sector companies.
Economic Outlook and Forecasts
The Office for National Statistics (ONS) is set to release its wage data for the three months to April on Tuesday. Early polling by Reuters indicates that average earnings growth, excluding bonuses, is expected to slow to 5.4% from 5.6% in the previous quarter. The Bank of England anticipates a more moderate pay growth rate of around 3%, which it believes will help bring inflation closer to its 2% target in the medium term.
It’s important to note that average earnings growth often exceeds pay settlements because the former includes the increase in pay when employers offer more higher-paid roles.
The recent data on pay settlements indicates a slight decline in typical wage increases in the UK, which aligns with the Bank of England’s expectations for a slowdown in pay growth. While minimum wage increases have helped lower-paid workers, the overall trend reflects broader efforts to manage inflation and ensure economic stability. As the UK economy adjusts to higher national insurance contributions and other changes, the outlook for wages and inflation will continue to evolve.
