Inflation and industrial unrest in UK threaten a timetable of trouble


Soaring inflation, an economy falling to the bottom of global league tables, and a summer of strike action ahead. As Boris Johnson attempts to reset the political agenda, the economic backdrop could hardly be worse.

This week the government will face more troubling news, with official figures on Monday expected to show the economy came close to stalling in April as families struggled with a record rise in energy bills. On Tuesday, fresh data will probably confirm wages again failed to keep pace with the cost of living, while the Bank of England is expected to raise interest rates to tighten the screw on household and business borrowing.

To mend a bruised political reputation and avert a recession, the prime minister is said to be planning a major reset speech on the economy soon. However, Johnson faces an additional headache from strike action that could spread into a summer of discontent.

Against a backdrop of high inflation, falling living standards, and severe worker shortages in some sectors, arguments over pay are inevitable. Rail workers plan three days of national strikes this month in the biggest walkout since 1989, as unions demand a fair deal on pay and guarantees against job cuts.

So far, Johnson has sought confrontation, warning that bigger wage deals could threaten a 1970s-style wage-price spiral that would force Threadneedle Street to push up interest rates further. In the midst of the cost-of-living crisis, he also wants to cut more than 90,000 public sector jobs. But beyond the railways, more industrial action could be coming down the track.

NHS workers in England are bracing for a sub-inflation pay deal that would leave nurses suffering a £1,600 real-terms hit to their incomes this year. The government is expected to announce a series of pay deals across the public sector for the current financial year soon, backdated to April. Ministers have argued “financial restraint” is necessary, but that risks widespread unrest. Last week’s viral video of a nurse telling patients in a crowded A&E that they could face a 13-hour wait resonated for many NHS staff.

Public sector workers have good reason to be angry. Those on the national payroll – including millions who served on the frontline of the pandemic – face much slower rates of wage growth than the country at large. Official figures show annual private sector pay rising at 8.2%, compared with just 1.6% in the public sector. This means doctors, police, teachers and civil servants are facing a much bigger hit to living standards from soaring inflation.

In contrast, City workers have enjoyed bumper payouts, after a boom in bankers’ bonuses and rapid pay growth for IT and professional services workers. Britain is facing a fresh rise in inequality, which was already at high levels after decades of sluggish average pay growth.

However, strike action may still be limited to particular pockets of the economy. Union membership is at a record low after decades of decline, down from a peak of more than 13 million in the 1970s to 6.4 million last year, less than a quarter of the workforce. With the fall in numbers has come a decline in strikes, with the number of days lost to industrial action at one of its lowest rates since records began in the 1890s. That trend is likely to be reversed this year, but will not come close to the records set in the 1970s and during the general strike of 1926.

As the governor of the Bank of England, Andrew Bailey, has warned, workers with the least bargaining power to demand higher pay will bear the brunt of inflation. Those in low-paid and precarious work on zero-hours contracts will face the biggest hit.

If the national rail strike does go ahead, it will come with a cost. Although more people can work from home after the pandemic spurred a rise in remote working, about half of the workforce cannot. The Centre for Economics and Business Research estimates that a three-day strike would cost £91m in lost output.

With the fallout from strikes adding to a gloomy economic outlook, the prime minister’s reset plan could soon be derailed.


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