THE Bank of England has been warned not to overplay the risk of wage growth to inflation, with next month’s possible interest rates cut the “shot in the arm” needed for the stagnating economy.

The TUC and economic experts have said warnings over the average wage going up 5.6 per cent in the year up to November should be welcomed as a positive sign among the more worrying trend of Britain’s stagnating economy.

Official figures have shown that the total number of paid employees in the UK fell by 47,000 to 30.3 million in December — the biggest drop since November 2020.

The Office for National Statistics said unemployment increased to 4.4 per cent in the three months to November 2024.

Vacancies also continued to decline, down to 812,000 over the period, 118,000 fewer than a year ago, while inactivity from long-term sickness also remains high, at 2.8m.

Put against this, the union federation welcomed 3.4 per cent wage growth across the year — the highest recorded since 2021.

TUC general secretary Paul Nowak said: “The Conservatives left the economy in a dismal state, with flatlining growth resulting in falling payrolls, falling vacancies, high youth unemployment and millions out of work because of long-term sickness. 

“The government has made the right calls on big decisions like public-sector investment and prioritising working people’s incomes, but the Bank of England must play its part with an interest rate cut at the start of February. 

“That is the shot in the arm our economy needs right now.

“Lower interest rates would help take the pressure off business’ bottom lines.

“It’s only by getting the economy moving that we will see more people in work.”

Mr Nowak said that after over a decade of Tory economic failure and falling living standards, real pay growth must be welcomed, adding: “It’s good for workers and good for local economies.  

“Pay growth has not led to higher inflation and the risk must not be overplayed — we need higher pay to break out of the low-pay, low-spending doom loop which has held back the UK economy for too long.” 

TUC Cymru general secretary Shavanah Taj said that rising unemployment and high levels of economic inactivity “show that the labour market excludes far too many workers.”

“The Tories left us with a failed economy,” she said.

“We now have governments in Westminster and Cardiff Bay that are working together to rebuild this, but it is crucial that Wales gets its fair share of investment and that communities that have been especially impacted, including Port Talbot, are prioritised.”

Big business has been pushing back against the simultaneous rise in employer National Insurance contributions and minimum wage increases in April announced by Chancellor Rachel Reeves in October’s Budget. 

Today the British Chambers of Commerce (BCC) jumped on the official figures, saying that there were already “warning lights” on the jobs market.

But ministers were warned not to get sidetracked from their promises to improve workers’ rights and support people back into work.

Analyst Rebecca Florisson from the Work Foundation think tank said the new figures provide a mixed picture, with wage growth driven by finance, manufacturing, wholesale and retail, and the private sector all at 6 per cent, with the public sector trailing at 4.1 per cent.

She said: “While real wage growth of 2.5 per cent on the year is good news for workers, these gains appear to be being driven by pay catching up with price rises, not by increased productivity or economic growth.

“The government must not be complacent that this level of pay growth will continue throughout 2025 and provide the improved living standards they are promising. 

“Achieving the government’s ambition to raise the employment rate to 80 per cent always appeared incredibly challenging, and looks even more so against a backdrop of a stagnating economy and falling vacancies. 

“However, it is vital ministers are not sidetracked from their long-term aims of raising labour market participation and improving workers’ rights.

“De-risking the route back into work for the near-record 2.81 million economically inactive due to long-term sickness could be key to achieving a higher employment rate, which requires employment support, but also notably, better access to good quality, flexible jobs.”

The official data also showed unemployment in Scotland fell slightly in the last quarter, with the rate for people aged 16 and over at 3.8 per cent between September and November last year.