The government is willing to accept short-term damage to the economy from public sector strikes rather than give in to pay demands and risk a longer-term hit from persistently higher inflation, Jeremy Hunt has insisted. Speaking in Washington, the chancellor said he “completely understood” public anger at the high cost of living but added that the impact of rising prices would be longer lasting and more damaging if ministers acceded to “hard to justify” pay demands. Hunt accepted public sector strikes had been a factor in the flatlining of the UK economy in February and said the four-day strike by junior doctors across England this week was “incredibly regrettable”. The chancellor, who is attending the spring meetings of the International Monetary Fund and World Bank, was speaking after it emerged that Britain recorded zero growth in gross domestic product in February. A wave of public sector strikes weighed on activity, offsetting a recovery in consumer spending despite the cost of living crisis, according to figures from the Office for National Statistics (ONS) on Thursday. The impact of strikes meant the economy failed to meet City expectations for a 0.1% month-on-month rise in GDP, the total value added by the production of goods and services across the economy. Asked what the government was doing to prevent further damage to the economy, Hunt said he was not interested in a “short-term fix” that would entrench inflation. “We have to get this right. I completely understand how the cost of living going up faster than wages makes people angry,” he said. “Inflation is the root cause of that anger. We must sure we don’t have the same inflation problems and the same arguments in a year’s time. The worst possible thing for junior doctors, nurses, teachers and rail workers would be if there was still concern about inflation this time next year.” Hunt, a former health secretary, hinted that the government would be willing to open pay discussions with junior doctors if they lowered their demand for a 35% pay increase. “I think it is very hard to justify a 35% increase given the economic pressures we face,” he said. “The nurses started on 19%. When they were publicly willing to commit to a lower number it was a good starting point for discussions.” February’s GDP performance followed growth of 0.4% in January, as revisions to earlier estimates pushed the economy back above pre-pandemic levels. However, the UK’s recovery to pre-Covid levels remained slower than that of any other economy in G7 group of large industrialised democracies. The ONS said construction grew strongly after a poor start to the year, with increased repair work taking place, alongside a boost from retail as many shops had a strong month for sales. However, it said this had been offset by civil service and teachers’ strikes, hitting activity in the public sector, while unseasonably mild weather led to a fall in the use of electricity and gas. Hunt was upbeat about the economy’s prospects despite the zero growth in February and a forecast from the IMF earlier this week that Britain would be the worst performing G7 country this year. “The IMF have undershot on the UK economy for quite a long time,” the chancellor said. “It has undershot in every year bar one since 2016. It is one of many forecasters.” Hunt said the government was exploring the possibility of consolidating local government pension schemes to create bigger pools of capital to invest in growth sectors of the economy. “We need pension fund reform,” he said. “Too much of pension fund investment is going into very low rate investment vehicles which are not going to give pensioners the best returns.” Hunt is keen to see a higher share of pension fund investment supporting unquoted but fast-growing companies rather than being channelled into ultra-safe bonds. Britain had a weaker investment record than its competitors but was making up for it through higher innovation. “We must be honest about our weaknesses,” he said.