Brexit Squeeze Eating Workers’ Earnings Highlights BOE Dilemma

You don’t need to tell U.K. nurses what this week’s inflation and wage data will show. They say their living standards have been squeezed for seven years, and now it’s reached crisis point.

With reports from the Office for National Statistics set to show pay continuing to lag price growth in Britain, nurses are just the latest group of workers to protest. Employees at the Bank of England last week reached an agreement following a three-day walkout, while employees of some McDonald’s restaurants went on strike demanding higher pay.

Sluggish consumer spending growth is one reason why the central bank will probably keep its benchmark rate at a record-low 0.25 percent on Sept. 14, according to a Bloomberg survey of economists. Yet because the pound’s depreciation since the Brexit vote is also driving up import costs, two policy makers are expected to push for a rate increase to keep prices in check.

Consumer-price inflation accelerated to 2.8 percent last month, the survey showed before Tuesday’s data. While that’s below the four-year high seen in May, it’s still far outpacing wages, which are projected to have risen a little more than 2 percent in July in a report due out on Wednesday.

Faster inflation is especially painful for public sector workers, laboring under a 1 percent cap on salary increases imposed as part of stringent austerity measures since 2010. Members of the Royal College of Nursing union descended on the British parliament in London last week, arguing their salaries have dropped 14 percent in real terms in the past seven years.

While employees of the government earn more than their peers in the private sector overall, nurses are among the lower paid with an average income of 23,500 pounds ($31,000) a year, according to the RCN. It reckons its members are about 3,000 pounds worse off in real terms than when the cap was imposed.

“They tell us it’s all about the economy,” Maria Trewern, an RCN representative, said, nodding at the Parliament buildings behind her as she waited for the protest to start. The union has seen a huge increase in requests for hardship loans, many from nurses in full-time employment, she said. “This is not for anything frivolous — it’s to put food on the table.”

At the far side of the square, Tracey Young, a community nurse from Ayreshire, Scotland, sat under a statue of Mahatma Gandhi to color in her handmade “Scrap the Cap” sign as she explained that a quarter of her own team have now left the industry, found work in other countries or retired earlier than planned. “It’s getting tough,” she said.

Demands to end the public-sector pay cap will be a key theme when the Trades Union Congress meets for its annual conference in Brighton, U.K. this week.

The BOE is facing a trade-off between supporting economic growth with record-low interest rates and heading off inflation with higher borrowing costs. Governor Mark Carney has said he’s watching pay developments closely.

While subdued wages in the National Health Service, the U.K.’s largest employer, are not new, the rapid surge in inflation prompted by the pound’s post-Brexit referendum drop is exacerbating the squeeze on budgets. Consumer spending, which had helped support the U.K. economy last year, posted its weakest growth since 2014 in the second quarter.

“It looks as if restrained public-sector pay increases are on borrowed time,” said Philip Shaw, an economist at Investec in London. “And it’s possible we see other areas within the private sector demanding more generous pay deals as well. It’s difficult to see much of a pickup in consumption without those income gains.”
Source: Bloomberg