Millions facing living standards squeeze amid inflation surge

illions of frontline public sector workers including NHS “heroes” who kept vital services going through the pandemic face a real-terms pay cut as inflation surges towards 10-year highs.

The Bank of England’s August monetary policy report is tomorrow expected to revise upwards projections for the rise in the Consumer Prices Index (CPI) measure of inflation — with a peak above three per cent expected towards the end of the year.

Crucially this would take the increase in the cost of living over the three per cent pay award to NHS dentists, nurses, paramedics, porters, cleaners and some doctors announced by Health Secretary Sajid Javid last month.

Millions of other public sector workers including teachers face a far bigger squeeze on their living standards as their pay is being frozen this year.

Some City economists fear inflation could rise even higher as the stronger than expected recovery, staff shortages in sectors such as hospitality and rising energy costs feed through to the CPI.

Forecasters Capital Economics today warned that they expect the index to rise to 4.4 per cent by November. Its chief economist Paul Dale said spikes in gas and electricity bills this autumn would add another 0.2 per cent to its previous CPI peak forecast of 4.2 per cent. It was last above four per cent in December 2011.

City broker Panmure Gordon’s chief economist Simon French said he expected inflation to breach three per cent as early as this month and stay above that level until at least late spring next year.

Paul Johnson, director of the Institute for Fiscal Studies, told the Standard: “On current policy it looks quite like millions of public sector workers will end up with a real-terms pay cut this year. If inflation hits four per cent, then even a three per cent pay rise is a cut in real-terms wages.

“A four per cent cut is quite substantial, particularly on top of the fact that for many public sector workers, their wages are already lower in real terms than a decade ago.” Private sector workers awarded pay rises of less than three per cent will also be hit.

The sudden surge in the CPI, which has already risen from 0.4 per cent in February to 2.5 per cent in June, has infuriated unions who say that it has wiped out the benefit of any “reward” for frontline health workers.

TUC general secretary Frances O’Grady said: “Tomorrow’s report from the Bank of England will show what unions, NHS staff and the public have warned — a three per cent pay rise for NHS workers is not enough.

“Lots of workers will find that prices are rising faster than their pay, especially those working in the public sector and other key workers who kept us going through the pandemic.

“Key worker pay is the acid test for the Prime Minister’s promise to ‘build back fairer’. Every key worker deserves a decent standard of living for their family. But too often their hard work does not pay. We owe them better.”

Christina McAnea, general secretary of the Unison public service workers union, said: “Rising prices are putting the squeeze on public service staff, both on the pandemic frontline and working tirelessly behind the scenes.

“This is no way to treat dedicated employees who kept the country going in the most challenging of times. The Government must ditch its unjust pay freeze and rethink the NHS pay award, which is looking decidedly less generous by the day.”

Bridget Phillipson, shadow chief secretary to the Treasury, said: “Whether it’s shortages of HGV drivers or increased food costs, the Government has been complacent and slow to deal with rising costs hitting households.”

A Treasury spokeswoman said: “Since the Bank of England became responsible for price stability, inflation has averaged around their two per cent target… The Government continues to take action to support living standards.”