Pay 1990: the spectre of stagflation

As the economy moves into 1990, the outlook is precariously balanced between the risks of recession and inflation, with trends in pay settlements the key to future developments. There is a clear worry that if pay increases are not contained, as demand and and productivity fall off during 1990, pressures on prices will not moderate rapidly. Companies, already faced with a burgeoning financial deficit and a squeeze on profits and liquidity, may then be forced into a period of intense labour shedding, thus tipping the economy towards recession. The intensity of pressures in the labour market have once again raised the spectre of stagflation, albeit of a milder form than previously experienced and in the context of a far more benign international environment; slugflation may be a more appropriate term.