Hundreds of thousands of public sector workers are threatening to tear up agreements and demand higher pay as the cost of living surges.

Inflation figures released yesterday were worse than expected, prompting Unison, one of the biggest public sector unions, to call for the reopening of a pay deal for 500,000 health workers clinched only two weeks ago.

Other unions said that they wanted to revisit pay deals and gave warning of rolling strikes this autumn if Gordon Brown persisted in trying to cap pay rises at 2 per cent.

Soaring food, fuel, gas and electricity prices sent the official inflation rate surging last month, wrong-foot-ing policymakers and forcing the Governor of the Bank of England to write to the Chancellor to explain how it had failed to keep the lid on inflation.

In an open letter to Alistair Darling, Mervyn King admitted that the consumer prices index (CPI), which measures food and fuel prices, reached 3.3 per cent in May, smashing through the upper limit of the Government’s 1 to 3 per cent target range. He blamed external factors such as the cost of crude oil and world farm prices.

Mr King predicted that the CPI would rise to more than 4 per cent before the end of the year.

The retail prices index, regarded as a better measure of the cost of living because it includes mortgage interest and council tax, rose from 4.2 per cent to 4.3 per cent.

Yesterday, amid signs of the Government losing its inflation-fighting credentials, Mr Brown ordered a pay freeze for all ministers and proposed a less generous deal for MPs than that suggested by an independent report.

The Prime Minister said that increases would be inappropriate at “a time of economic uncertainty”.

Mr King said that it was crucial that employees should not respond to the loss of their real spending power by bidding for more substantial pay increases. The rise in living costs has not yet fed through into wage demands, but policymakers fear that if this happened it could lead to a 1970s-style prices and wages spiral.

Dave Prentis, the general secretary of Unison, said that Mr Brown would pay the “ultimate price” at the next general election if he continued to “shower insults” on public sector workers. He told the union’s annual conference that it would ballot for industrial action among its NHS members if the Government refused to reopen a deal giving 8 per cent over three years. Unison officials said that they would revisit a clause in the deal which recognises that members need to be “protected” if inflation rises.

Mike Jackson, senior health officer, said that the second and third years of the three-year deal could be renegotiated. Many public sector deals have escape clauses allowing renegotiation if circumstances materially change.

Mark Serwotka, the general secretary of the Public and Commercial Services Union, which represents civil servants, said that he would press to reopen the current three-year deal for the Department for Work and Pensions, where there is also a get-out clause. Private sector workers also signalled that they expected higher pay to offset the rising cost of living. Usdaw, the shopworkers’ union, which has more than 360,000 members, said there was now a strong case for pay deals of more than 4 per cent.

Average pay deals across the public and private sectors, excluding bonuses, are currently running at 3.9 per cent.

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