Unemployment is now firmly on the rise. The numbers of jobless, as measured by people out of work and claiming benefit, rose by 9,000 to 819,000 in May. This marks the fourth successive monthly jump. With the economy slowing, and business confidence on the slide, that is no surprise. Every finance director in the land is looking to cut costs and the payroll is an obvious place to find them.

Every lost job causes personal hardship. But there is one silver lining in this latest thundercloud hovering over the British economy. Workers worried about losing their jobs become more cautious about pushing for big pay rises. And it is excessive pay demands that, if not checked, risk turning an economic setback into a full-blown catastrophe. For the threat of inflation now haunts the UK once again.

The strength of price rises in a range of fuels and commodities - yesterday it was corn that scaled new heights - has taken policymakers by surprise, wrong-footed economists and made the fight to curb inflation much harder. The next move in UK official interest rates, which just a fortnight ago was expected to be a cut, is now more likely to be a rise. If wage demands start spiralling upwards too, that rise may have to be steep and prolonged. Just a few months ago there were forecasts of the base rate falling from its current 5 per cent to as low as 4 per cent by Christmas. These now look laughably optimistic.

Fortunately, pay pressures have been relatively subdued in recent months. Average earnings, excluding bonuses, were up 3.8 per cent in May, unchanged from April. Public sector employers are showing commendable restraint. Half a million NHS employees in the Unison union voted last week to accept a 2.75 per cent pay rise this year and 8 per cent over three years. A quarter of a million council workers and GMB members accepted a 2.45 per cent rise this month. So far the “summer of discontent” predicted for public services has not materialised.

The story in the private sector is less encouraging. Pay rises there have started to creep ahead of public sector settlements. When tanker drivers launched their dispute over pay, newspaper coverage focused on the risk of disruption to petrol supplies to Shell garages - in turn leading to the possibility of panic-buying - rather than on the far darker aspect of the showdown, which was that they had been offered, and rejected, a 6.9 per cent rise. That and other inflation-busting pay deals will send the wrong signal to those who until now have been content to settle for a 2, 3 or 4 per cent rise. The self-feeding wage-price spiral of the 1970s was characterised by workforces trying to leapfrog one another, as well as the inflation rate, in their pay demands.

With every other headline underscoring how the cost of living is soaring, there is a serious danger of higher inflationary expectations becoming entrenched. We will know more today when the Bank of England publishes its latest poll on the public's attitude to inflation. Expect bad news. Meanwhile, private sector workers, tanker drivers included, need to show the same restraint as their public sector colleagues if interest rates are not to go up, and stay up. A lack of restraint now could lead to higher inflation, increased borrowing costs, greater burdens on business and, in the longer run, more people out of work.