Srunaway inflation, an economy falling to the bottom of the world rankings and a summer of strikes 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 nearly stagnated in April as families struggled with a record rise in energy bills. New data on Tuesday will likely confirm that wages have again failed to keep pace with the cost of living, while the Bank of England is expected to raise interest rates to tighten the screws on household and corporate borrowing. companies.
To mend a battered political reputation and stave off a recession, the prime minister is reportedly planning a major economic reset speech soon. However, Johnson faces an additional headache from a strike that could turn into a summer of discontent.
In a context of high inflation, falling living standards and severe labor shortages in some sectors, wage disputes are inevitable. Railway workers are planning three days of nationwide strikes this month in the biggest walkout since 1989, as unions demand a fair wage deal and safeguards against job cuts.
So far, Johnson has sought confrontation, warning that bigger wage deals could threaten a 1970s-style price-wage spiral that would force Threadneedle Street to raise interest rates further. In the midst of a cost of living crisis, he also wants to cut more than 90,000 public sector jobs. But beyond the railways, other industrial actions could occur.
NHS workers in England are bracing for a below-inflation pay deal that would leave nurses suffering a £1,600 drop in real earnings this year. The government is expected to announce a series of public sector pay deals for the current fiscal year soon, with retroactive effect from April. Ministers have argued that ‘financial restraint’ is necessary, but it risks causing widespread unrest. Last week’s viral video of a nurse telling patients in a crowded A&E they could face a 1pm wait has resonated with many NHS staff.
Public sector workers have good reason to be angry. People on the national payroll — including millions who served on the frontlines of the pandemic — face much slower rates of wage growth than the country as a whole. Official figures show private sector wages increase by 8.2%, against only 1.6% in the public sector. This means that doctors, police, teachers and civil servants face a much worse standard of living from soaring inflation.
By contrast, city workers have enjoyed windfall payouts, following a boom in bankers’ bonuses and rapid wage growth for IT and professional services workers. Britain is facing a further rise in inequality, which was already at high levels after decades of slow growth in average wages.
However, strike action may still be limited to particular pockets of the economy. Union membership is at a record low after decades of decline, from a peak of more than 13 million in the 1970s to 6.4 million last year, less than a quarter of the working population. The drop in numbers has been accompanied by a drop in strikes, with the number of days lost in industrial action at one of its lowest rates since records began in the 1890s. This trend is expected to reverse this year, but will not approach the records set in the 1970s and during the general strike of 1926.
As Bank of England Governor Andrew Bailey has warned, workers with the least bargaining power to demand higher wages will bear the brunt of inflation. Those in low-paying, precarious jobs with zero-hour contracts will be hardest hit.
If the national railway strike continues, it will have a cost. Although more people can work from home after the pandemic spurred an increase in remote working, about half of the workforce cannot. The Center for Economics and Business Research estimates a three-day strike would cost £91m in lost production.
With the fallout from the strikes adding to a bleak economic outlook, the Prime Minister’s reset plan could soon be derailed.