Public sector wage growth is expected to remain below inflation until inflation is brought under control after the International Monetary Fund (IMF) warned against spending restrictions.
The Bank of England will continue to keep interest rates high to curb inflation, the governor said.
Ministers are forced to offer higher wages to doctors and teachers to end ongoing strikes driven by real wage cuts amid double-digit inflation.
Treasury officials warned Jeremy Hunt, however, that there is still a risk of a wage-price spiral as high public sector wages fuel wage inflation in the private sector, as a fifth of all workers work for the government.
The Chancellor was told that the link between public and private sector wages is currently higher than usual because unemployment is very low.
The UK is likely to see a larger increase in public debt than some other major economies as it “considers further increases in public wages and other social spending,” the IMF’s semi-annual report says. control monitor.
The Fund dismissed claims that higher wages for civil servants had little effect on headline inflation, which bolstered Hunt’s position. It states: “The impact of government wage increases on personal wages and core CPI (consumer price inflation) is significantly larger and longer when labor markets tighten.”
The Treasury previously calculated that 5 percent is a rough tipping point when public sector wage growth starts to fuel inflation.
Striking young doctors say they need a 35 percent pay rise to make up for the cuts they have suffered over the past 15 years. The government refuses to start negotiations with its union unless the demand is rejected in advance.
Speaking in Washington, Bank of England Governor Andrew Bailey also warned against easing the fight against inflation, despite the weakness in the financial sector, partly due to rising interest rates. He said: “What we have not done – and should not have done – is at least deviate from our preferred monetary policy due to financial instability.”
Rishi Sunak promised to halve inflation by the end of this year. The Office of Budget Responsibility predicts it will fall to 2.9 percent, still above the 2 percent target but well below current levels.
However, recent price data came in higher than expected, and Mr Hunt is said to be concerned about signs that domestic factors, such as a shortage of workers to fill vacancies, are proving stubbornly stubborn.
The chancellor is currently in the US for the IMF’s spring meeting and will hold talks with G7 and G20 counterparts as finance ministers try to restore financial stability and coordinate to bring inflation down without triggering a devastating recession.
Source: I News
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