Wage growth in the UK slowed to 4.5% in the September-November period, according to official figures, as private sector pay growth slowed sharply.

Wage growth for those employed by private companies has slowed to its lowest level in five years, according to the Office for National Statistics (ONS).

In contrast, wages for public sector workers jumped, possibly because pay rises were decided earlier than in previous years, the ONS said.

Meanwhile, the number of corporate employees continued to decline, dropping by 135,000 in the three months to November, with declines particularly in stores and hospitality.

This was despite the economy heading into the crucial Christmas period, when businesses traditionally hire more pub and shop staff.

Average wages, excluding bonuses, slowed from the 4.6% rise recorded in the August-October period.

Sanjay Raja, chief UK economist at Deutsche Bank, said the moderation in wage growth was “very encouraging” for interest rates.

“I know it sounds strange to say that lower wage growth is a good thing,” Mr Raja told the BBC’s Today programme. “But for the Bank of England, which is trying to rein in inflation… that’s a good thing.

“This gives the central bank more peace of mind about the future path in terms of inflation returning to its 2% target.”

The inflation rate, which measures the pace of price rise, was 3.2% in November, down from 3.4%. The ONS will release December data on Wednesday.

Higher wage growth generally increases inflation because consumers can demand more goods and services and pay more for them. The Bank of England is raising interest rates to counter this, but could also cut them if demand in the economy falls.

Since August 2024, the Bank of England has cut interest rates six times, most recently in December, when borrowing costs were cut from 4% to 3.75%.

Economists widely expect borrowing costs to remain unchanged in February, when the Bank of England meets its rate-setting committee for the first time this year.

ONS data showed a stark contrast between public and private pay growth in the three months to November.

Average annual wage growth in the public sector was 7.9%, compared to 3.6% in the private sector.

Liz McCune, head of economics and statistics at the ONS, said: “Private sector wage growth has slowed to its lowest level in five years, but public sector wage growth remains strong, reflecting the continued impact of some pay rises that were decided earlier than last year.”

The unemployment rate stood at 5.1% between September and November, the highest level since early 2021, when the UK and the world were still grappling with Covid-19 and lockdowns.

At the same time, the number of employees on companies’ payrolls decreased by 135,000 compared to the previous year.

Preliminary estimates for December show that salaries have fallen by 43,000 compared to November, when Finance Minister Rachel Reeves announced her budget.

However, the ONS said December figures should be treated with caution as they may be revised as new data is released.

Mr McCune said the decline in employees on payroll was “concentrated in retail and hospitality” and reflected “continued weakness in hiring activity”.

The unemployment rate for 16- to 24-year-olds, traditionally a rich labor pool for pubs, restaurants and shops, remained near a 10-year high at 15.9% from September to November.

Yael Selfin, chief economist at KPMG UK, predicted that the overall unemployment rate could rise in the coming months.

“Forward-looking research shows that rising employment costs are constraining demand for labor and that employers continue to signal they are cutting back on hiring,” he said.

The government increased national insurance costs for employers from 13.8% to 15% of workers’ income.

The threshold for businesses to start paying tax on employee salaries has also been reduced from £9,100 to £5,000 a year.

The minimum wage has also increased And it will rise again in April..

The government is extending the WorkWell scheme for three years to help people get back to work, or back into work.

This system helps people with disabilities and health conditions access physical therapy, counseling, and workplace adjustments.

Secretary of State for Work and Pensions Pat McFadden said the WorkWell pilot had enabled 25,000 people to stay in or return to work.

Gabriel, 23, has a first-class degree in performing arts, but pursuing a career hasn’t been easy. He has cerebral palsy, which causes seizures that are so painful that he can’t get out of bed for days at a time.

Over the summer, Gabriel participated in the WorkWell scheme for a month, receiving physical therapy and advice on how to succeed at work. He is currently paid to work one day a week at performing arts company Haringey Shed.

“Talking about the working environment, the way I conduct myself and the way I talk to people has given me confidence,” he said.

Additional reporting by Faarea Maesud and Zoe Conway