The wave of strikes that has swept across the UK is hitting the economy harder than initially expected – and the disruption is set to continue, as health and education unions plan industrial action that could escalate extend until Christmas.
Chancellor Jeremy Hunt argues that while the impact of NHS strikes on patients is “incredibly regrettable”, the short-term impact on growth is a price to pay if it helps to curb inflation.
Economists agree that the short-term impact on GDP is not big enough to change the outlook for the UK economy this year – although most also think a more generous pay deal in the public sector would have little impact on the outlook for inflation.
Far more important, however, is the long-term impact on Britain’s workforce of a slow-running staffing crisis that is straining the health service and undermining the quality of education.
“There is a legacy that is hard to see,” said Paul Dales, of consultancy Capital Economics, who believes growing NHS waiting lists are a factor in the post-pandemic contraction of the workforce. British work.
Since last June, when railway workers began to walk off the job – followed in rapid succession by postal workers, nurses, paramedics, teachers and staff from scores of government agencies – the number of workdays lost due to of industrial action has reached the highest level in decades.
Office for National Statistics surveys show how this has affected different sectors. As Christmas approaches, rail strikes have led to the cancellation of reservations in the hospitality sector at the height of the festive season, while postal delays have hit retailers and many other businesses.
But the ONS noted that some economic activity has been diverted rather than destroyed – with taxis and car hire companies getting a boost from stranded travellers, and some pubs in residential areas gaining clientele from revelers unable to get to at downtown office parties.
Since the start of the year, however, disruption has focused on hospitals, schools and public bodies ranging from the Border Force and the Passport Office to the British Museum. This looks set to continue, even as disputes with the railroad and postal unions move closer to resolution.
In February, these walkouts dampened growth in an otherwise resilient economy. Services sector output was dragged down by a contraction of 1.7% in education and 1.1% in public administration. Over a three-month period, human health activity was 3.1% lower than the previous three months.
Harder to count is the cost of patients and parents unable to work with canceled classes and treatments. The NSO find only a small minority of people were unable to work during the railway strikes, but the majority of parents would have to reduce their hours or miss work if the school strikes continued.
“It’s important because of how long it lasts. . . we’ll be talking about six months where the cumulative impact will be quite significant,” said Andrew Goodwin of consultancy Oxford Economics.
Goodwin noted that while production in the affected sectors has returned to its previous level in the months when no strikes took place, it has not rebounded enough to repair the damage caused by the walkouts.
Other economists say the short-term disruption of the strikes will not alter the trajectory of an economy that is currently doing better than expected thanks to lower wholesale energy prices.
Even with the strikes, it looks like the winter recession story has evaporated,” said James Smith, an economist at ING.
But that doesn’t mean the government can let wage disputes drag on without consequences for the economy.
While most economists don’t buy the Chancellor’s argument that a rise in public sector wages would fuel inflation, they say the biggest worry is an unresolved recruitment and retention crisis that is eroding capacity of the NHS and the school system. This could have serious long-term effects on the economy, as deteriorating population health keeps growing numbers of people out of work.
Andrew Bailey, the Governor of the Bank of England, has repeatedly Underline this increase in economic inactivity due to poor health, as a development likely to fuel inflation and lead to higher interest rates than would otherwise be necessary.
Smith said anything that makes the UK’s labor shortage problems worse could have a longer-term impact. “It’s clear that the NHS problems are part of that story,” he said.
More important than the size of any pay rise in the public sector is how it is financed.
If the Treasury seeks to cut spending in other areas to allow for higher wage deals, the overall effect could be inflationary, Goodwin argued, because public sector output would be lower.
“The austerity debate of the past 15 years has shown that squeezing departmental budgets to do more with less ultimately leads them to do less.”