UK hourly labour costs grow at fastest pace in two years

The cost of employing someone for an hour of work rose 3.7% in the fourth quarter compared with a year earlier, up from 3.1% in the previous three months and the most since the July to September period in 2015, the Office for National Statistics said.

While the increase partly reflects a drop in the number of hours worked in the fourth quarter, firms could face pressure to protect margins by raising prices unless there is a pickup in productivity. From the third quarter, labour costs were up 1%.

The government’s fiscal watchdog remained downbeat about productivity in it latest forecasts published on Tuesday, predicting output per hour would grow less than 1% on average over the next three years.

The increase in labour costs over the past year was driven by non-wage expenses, which jumped by 6.5%. That includes national insurance and pension contributions as well as sickness and maternity pay. Wage costs rose by 3.1%.

Pressures were strongest in the private sector, where labour costs climbed by 4%.