Will public sector strikes in the UK lead to a wage-price spiral?
The UK is being gripped by industrial action by public sector workers. In this note we quantify the impact of higher public sector wages on inflation and monetary policy. Major central banks, such as the ECB and the Fed, are monitoring wage dynamics closely, and the UK experience is relevant.
We judge public sector take-home pay to be lower than equivalent private sector pay. As a result, the disputing parties are likely to negotiate a settlement that leads to higher pay for public sector workers
Higher public sector wages will feed through to private sector wages and into consumer prices
We consider four scenarios. Depending on the scenario, inflation could be 0.2-0.8 percentage points higher than our baseline with the Bank Rate rising by 25bp-100bp
This, therefore, presents an upside risk to our inflation and Bank Rate forecasts