Nothing strikes fear into a central banker's heart like the three little words 'wage-price spiral'. In an environment where inflation is soaring, workers are understandably tempted to ask for bigger pay rises to cover their increased living costs. But if wages start to rise, there is a risk that businesses will claw back the increased expense by increasing their prices further. Then wages and prices start pushing each other higher - and inflation takes a firm hold.

Today's pay data will therefore come as welcome news for Mervyn King and his fellow members of the Bank's Monetary Policy Committee, as it shows that pay increases fell slightly in the three months to June to 3.5 per cent. But scratch the surface of the figures and it is clear that lower public sector wage deals averaging around 2.7 per cent are keeping a lid on pay increases as private sector workers are receiving wage rises averaging around 3.8 per cent.

How long this can continue is questionable. There have already been several strikes by public sector workers over pay deals this summer before a beleagured Mr Brown started his two-week break in Southwold. Passport workers have already downed tools as have council workers. It is worth mentioning that as unemployment starts to rise, the threat of losing ones job may act as a curb on this. But if other public sector workers follow suit, the Government will find itself between a very big rock and a very hard place. Giving in to pay demands to gain a few popularity points could hasten the arrival of higher inflation across the country. Let's hope Mr Brown still manages to enjoy the rest of his summer holiday.

Explore Economics

• Pre-Budget Report 2008

• Budget 2009

• World Economic Forum

• The Times MPC

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive