Pay rise for NHS staff and teachers not a big inflationary risk

We doubt the independent pay review bodies’ recommendations for the government to give teachers and NHS staff a 5.5% pay rise will prevent wage growth from slowing to 3.0% by the end of next year. But if the government chooses to extend this pay rise to all frontline public sector workers and civil servants, it would probably support wage growth and domestic inflation by a bit more than we expect. That may mean interest rates are cut slower and/or by less than we anticipate.