Nicola Harris, Senior Underwriter to the UK Transport and Metals sectors at Atradius, says businesses have become more resilient to disruption, but some are running out of options as strikes continue.
From ambulances to nurses to train drivers, hardly a day goes by without reports of fresh strike action by UK workers fighting for pay rises.
In February alone, 348,000 working days were lost because of labour disputes. Over three-fifths of strikes in the month were in the education sector. This meant that many parents were unable to work, and often cut back their own spending as a result. In England, teachers’ long dispute with the Government over pay remains unresolved.
But it’s not just teachers; strike action is widespread and having a deep impact on businesses and the economy. The impact of the strikes and resulting pay rises, most of which are double-digit, will feed into continued sustained high inflation. The latest figures from the Office for National Statistics (ONS), show underlying inflation at around 8%.
And it comes at a time when businesses are already under strain, coming off the back of Brexit, the Covid pandemic, and the impact of Russia’s invasion of Ukraine. So, for many businesses, double-digit pay increases are hard to sustain.
High inflation and stagnant economic growth
The strikes we’re still seeing across the UK at the start of summer 2023 started with the hauliers who disputed pay and working conditions in 2021. This led to a shortage of fuel at pumps and the army being called in to supplement the shortfall of workers.
The hauliers came first, but strike action has since become widespread and led to generalised reductions in productivity and output. This is reflected in the most recent GDP figures: a lack of GDP growth in February 2023 was partly a result of strike action from teachers and the civil service. My colleagues and I at Atradius regularly talk to businesses across a range of sectors and there continues to be much uncertainty. Even those businesses that went through strike action last year, could again face industrial action in 2023.
Coping mechanisms
Businesses in the UK have weathered many challenges in recent years, from Covid to Brexit. But the very challenges that have stretched businesses have also made them more adaptable to other disruptions, including strikes. Customers understand that disruption is part of business life these days, and that’s especially true at a time when industrial action is so widespread; it tends not to be businesses in isolation that are impacted, but often many of their competitors or partners too.
A lot of businesses now have coping mechanisms in place to adjust. Most notably, this includes the flexibility for large numbers of employees to seamlessly switch to home working in the event of transport or education strikes.
As a result, some businesses have weathered strike action to a certain extent. For example, there were reports that last year’s strike action at Felixstowe, the UK’s largest container port, had minimal impact on day-to-day business; many customers, accustomed to disruption, rearranged the transport of their goods. Port owner Hutchison Ports (UK)’s Head of Corporate Affairs told the Transport Select Committee in October 2022: “The sense we got from our customers was while the strike wasn’t welcome… they would deal with it like they’ve dealt with every other disruption… they’ve dealt with the disruption without any real significant impact on supply chains.” A pay deal was eventually reached with workers.
Running out of options
The majority of businesses we speak to understand that they need to protect their workforce by offering pay rises amid the impact of inflation and the cost of living crisis. With such a tight labour market – there were 1.1 million vacancies to fill at the last count – many businesses have little choice but to raise pay to keep valued employees. The last thing businesses want is to lose workers to competitors who may be offering pay deals that are in line with inflation.
However, smaller, labour-intensive businesses will struggle and public sector pay rises are lagging behind the private sector.
The impact of strikes shouldn’t be underplayed. I see the effects first hand in the transport and logistics sectors; if a business sees disruption in its core operations, affecting key customers, it could lose contracts and damage relationships. If, for example, hauliers negotiate higher wages, then every sector of the economy that transports goods or requires goods will see cost increases as well.
Most of the businesses I speak to have had so much come at them over the last couple of years that they don’t have many options left in terms of additional margin they can sacrifice. Those that do have any flexibility are in negotiations for pay rises. Widespread margin pressures and higher overheads mean we will certainly see the impact of industrial action when businesses publish their 2023 results.
So, while in some ways businesses have become more resilient and able to withstand disruption in the wake of Covid and Brexit, it’s clear that ongoing strike action is taking a tough toll.
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