Britain’s new ‘winter of discontent’ deepens as widespread strikes mount over festive period

CREWE, UK – Dec. 13: RMT Union members picket outside Crewe rail maintenance centre as they strike over pay and working terms on December 13, 2022 in Crewe, United Kingdom. Members of the National Union of Rail, Maritime and Transport Workers (RMT) are striking across the UK in the run-up to Christmas and over the festive period holding out for a pay increase above the rate of inflation which is currently at 11%.

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LONDON — The list of workers launching industrial action in the U.K. over the Christmas period continues to grow, fueling concerns about more persistent wage inflation.

Border Force staff last week announced that strikes will be held across multiple U.K. airports from Dec. 23 to 31, demanding a “10% pay rise, pensions justice, job security and no cuts to redundancy terms.”

The strikes were voted through by 100,000 members of the Public and Commercial Services Union (PCS), and followed announcements of industrial action in a number of other public sector departments.

“Like so many workers, our members are struggling with the cost-of-living crisis. They are desperate. They are being told there is no money for them, while they watch ministers giving out government contracts worth billions of pounds to their mates,” said PCS General Secretary Mark Serwotka.

Workers across the U.K. are striking to demand better pay and conditions, with inflation hitting a 41-year high of 11.1% in October as household energy bills and food prices continue to squeeze incomes.

In recent weeks, upcoming strike actions have been announced by nurses, rail workers, postal workers, ambulance workers, airport staff, Border Force agents, highway workers, Eurostar staff, civil servants, bus drivers, firefighters, charity workers, meteorologists and offshore workers.

British Prime Minister Rishi Sunak has struck a combative tone on the widespread strikes, last week refusing to rule out a ban on industrial action by emergency services. He has accused “union leaders” of being unreasonable and vowing to protect “ordinary families.”

LONDON – Strikers from the CWU Trade Union attend the picket line at Peckham Royal Mail centre on November 24, 2022 in London, England. Strikes planned for the Black Friday weekend and the run-up to Christmas will go ahead after talks between Royal Mail and the Communication Workers Union ended without agreement.

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A key problem Sunak faces if he constructs any narrative against the strikers is that the walkouts are voted for by union memberships, with almost 6.7 million people — roughly 10% of the national population — holding trade union membership as of the latest available figures in 2020.

“What I think will register the most in financial markets’ consciousness is the potential for this to drive wage growth higher, which is a major concern for the Bank of England,” said Antoine Bouvet, senior rates strategist at Dutch bank ING Groep.

The central bank has been flagging tightness in the U.K. labor market for a while in its justifications for tighter monetary policy, and Bouvet said that the strikes are bringing to the fore greater bargaining power for employees.

“This could feed through to inflation, and so this is going to keep bond investors on their toes in 2023,” Bouvet added.

Public-private pay growth gap

The disproportionate unrest among public versus private sector workers reflects the sizable gap between the two with regards to pay growth in recent years.

Paul Hollingsworth, chief European economist at BNP Paribas, told CNBC on Monday that private sector real wages (adjusted for inflation) are roughly back at the levels seen in December 2019, prior to the Covid-19 pandemic, based on September’s figures.

For the public sector, real earnings were 5 percentage points lower, and Hollingsworth suggested that the growing gap had become “unsustainable.”

“I think there’s clearly a lot of pressure here for some catch-up on the public sector side of things, and it’s clear that there is that labor bargaining power there.”

October’s employment and wage figures, released by the ONS on Tuesday, showed very slight improvement on this widening gap, but it remains significant.

“Against the backdrop of a new winter of discontent as the nation’s frontline takes to the picket line, total pay in real terms pay and regular pay both fell by 2.7%,” noted Marcus Brookes, chief investment officer at Quilter Investors.

“However, the gap between private and public sector pay narrowed slightly, with private sector pay up 6.9%, while public sector pay is up by 2.7%.”

A striking dockworker on a picket line outside the Port of Liverpool during a strike in Liverpool, UK, on Tuesday, Sept. 20, 2022.

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Hollingsworth said the key question for economists and the public is whether the current pressure is a “one-off catch-up” for public sector growth to close the gap to the private sector, or “the beginning of a more sustainable or more structural shift in the worker bargaining power, and the bargaining power of union.”

While many economists may assume that the additional bargaining power being levied will lead to higher wages and therefore higher, more entrenched inflation, Hollingsworth did not believe this is a foregone conclusion.

He argued that the Bank of England would most likely respond to any upward pressure from wage rises with further tightening of monetary policy, and as such is likely to retain the guidance that it can “act forcefully” if there are signs of persistent underlying inflationary pressure.

On the fiscal side, he suggested that the government could accommodate higher public sector wages in a way that is fiscally “net neutral” over the medium term, through increased taxation elsewhere.

Finance Minister Jeremy Hunt, in his Autumn budget statement aimed at addressing a substantial hole in the country’s public finances, avoided frontloading the pain of his tax increases and public spending cuts, with the worst of the policy impact coming after 2024.

For a government trying to restore its fiscal credibility through consolidation after a disastrous year, Hollingsworth suggested that huge spending pledges on public sector wages in the short term may remain unpalatable.

However, with negotiations remaining fraught and unions showing no signs of backing down, he said some catch-up on public sector pay growth will likely be required to prevent further disruption.

A vicious cycle

Part of the problem facing the British labor market, which BNP Paribas’ Hollingsworth characterized as “tight but not strong,” is a huge spike in economic inactivity among working age adults since the onset of the coronavirus pandemic.

This, Hollingsworth noted, has contributed partly to a “chronic weakness on the supply side of the labor market.”

The total number of “economically inactive” people — those neither working, nor looking for a job — between the ages of 16 and 64 rose by more than 630,000 since 2019.

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The Office for National Statistics reported that between June and August 2022, around 2.5 million people cited long-term sickness as the main reason for economic activity, an increase of around half a million since 2019.

A significant portion of these people are between the ages of 50 and 64, and Hollingsworth highlighted one in five people in that age group are now on a waiting list to access treatment via the country’s National Health Service (NHS).

“You have this circularity where it could be that that gap in terms of pay levels is having issues in terms of recruitment, it’s having issues in terms of retention,” he said.

“If that has an impact on the provision of services or the general issues around that, if that’s feeding back into other areas like the inactivity in the labor market, that can have macroeconomically significant effects.”

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