The Bank of England is paying very close attention to government paychecks. Governor Andrew Bailey said on June 1 that the central bank is actively monitoring public-sector wage growth as a potential source of inflationary pressure.
The numbers tell the story. Public-sector regular pay grew at an annual rate of 4.8% in the first quarter of 2026. Private-sector wages, meanwhile, climbed just 3.0% over the same period.
The wage gap and why it matters
Public-sector pay is set through political and budgetary decisions rather than pure market forces. That means the BoE can’t really influence it through interest rate policy the way it can cool down a hot private labor market.
Bailey acknowledged that monetary policy has limits when it comes to absorbing external shocks to the economy, and government wage decisions arguably fall into that category.
