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Abu Dhabi, UAESunday 16 December 2018

As Bank of England can see, you can't spend what you don't have

Sluggish consumer spending growth is one reason why the central bank will probably keep its benchmark rate at a record-low

An unusually empty Regent Street in central London's West End shopping district. Simon Dawson/Bloomberg
An unusually empty Regent Street in central London's West End shopping district. Simon Dawson/Bloomberg

No one need tell UK 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 behind 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 per cent on September 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 policymakers are expected to push for a rate increase to keep prices in check.

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

Faster inflation is especially painful for public sector workers, labouring under a 1 per cent cap on salary increases imposed as part of stringent austerity measures since 2010. Members of the Royal College of Nursing (RCN) union descended on the British parliament in London last week, arguing their salaries have dropped 14 per cent 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 (Dh113,966) a year, according to the RCN. It reckons its members are about £3,000 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 in central London 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.”

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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, south England 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. The governor Mark Carney has said he is watching pay developments closely.

While subdued wages in the National Health Service, the UK’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 UK 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 pick up in consumption without those income gains.”