The median pay increase in the private sector remained at 4 percent in the three months to January 2025, according to the latest data from Incomes Data Research (IDR).
The proportion of private sector pay rises worth 5 percent or more increased from 14 percent in December to 17 percent in the latest analysis period, pushing the upper quartile of awards from 4 percent to 4.5 percent. This was mainly driven by increases in the manufacturing sector, where the upper quartile also rose to 4.5 percent from 4.3 percent. January is a key month for pay settlements in manufacturing.
Across the whole economy, the median pay rise stood at 3.5 percent, half a percentage point lower than in the private sector. This marks a decline from the 4 percent median recorded in the latter half of 2024 and is the first time the median has fallen below 4 percent since March 2022, when it stood at 3.8 percent.
The decline in the overall median, from 4 percent in December to 3.5 percent in January, was influenced by a decrease in the proportion of pay awards between 4 percent and 4.99 percent. In January, 31 percent of increases were in this range, down from 39 percent in December. Meanwhile, the proportion of pay rises in the 3 percent to 3.99 percent range grew to 41 percent, up from 33 percent.
Impact of Inflation and National Living Wage
Pay awards remain above the current Consumer Prices Index (CPI) inflation rate, which was 3 percent in the year to January 2025. However, rising inflation could put further upward pressure on pay. Another key factor is the upcoming increase in the National Living Wage (NLW), which is set to rise by 6.7 percent in April. This will bring the minimum hourly rate for workers aged 21 and over to £12.21, affecting businesses where employees are on or just above the statutory minimum.
Zoe Woolacott from IDR noted that pay levels could rise again by April as a result of these pressures.
“The whole economy median may rise again by April due to the influence of the forthcoming uplift in the NLW and the uptick in inflation could also play a role. Wage rises tend to lag behind inflation – and so the former may eventually follow the upward trend in the latter, depending on the extent of any rise in inflation,” she said.
Not-for-Profit Sector Sees Lower Pay Growth
The IDR’s latest pay settlement data is based on a sample of 68 awards effective between 1 November 2024 and 31 January 2025, covering nearly 300,000 employees. Most of the awards come from large private sector organisations, with limited representation from the public sector.
In contrast to private sector trends, the not-for-profit sector saw lower pay growth, with a median increase of just 3 percent. Although these awards make up a smaller portion of the dataset, they contributed to the overall economy-wide median falling below the private sector figure.
With the April pay review period approaching, businesses will be closely monitoring inflation trends and the impact of the National Living Wage increase on overall pay awards.