End of Austerity
Theresa May has announced that the cap on public sector pay rises is to be lifted, with a 1% rise for police officers and a 1.7% rise for prison officers. However, this appears to be a practical rather than political measure, designed to addressed specific industry recruitment and retention issues. And of course, with inflation (CPI) running at 2.9% pa, the unions have noted that these still amount to pay cuts in real terms. On a more granular basis, the cost of clothing and footwear is rising by 4.6% pa. Whilst this particular item is likely due to temporary Brexit related inflation that should subside, the broader trend is nothing new. Both public and private sector pay increases have tracked behind inflation since the financial crisis; the longest stagnation of wages in modern history despite almost full employment. Those hoping for relief from inflation through rate rises are likely to be disappointed at tomorrow’s monetary policy committee meeting, but pressure continues to build on Mark Carney to lift base rates by the year end.