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.

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.


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