20th November 2024
In a surprising revelation that could shake up economic policy, Britain’s official labour market statistics might be missing nearly a million workers, according to a report by the Resolution Foundation. This discrepancy has significant implications for the Bank of England’s (BoE) monetary policy, particularly in deciding the pace at which to adjust interest rates.
The think tank pointed out that the current methodology used by the Office for National Statistics (ONS) might not only be underestimating the number of people in employment by approximately 930,000 since 2019 but also overstating the number of workers who have left the workforce. This comes at a time when the BoE has been cautious with rate cuts, moving by half a percentage point since August, a pace slower than both the European Central Bank and the U.S. Federal Reserve, due to concerns over persistent inflation driven by supposed labour market pressures.
Adam Corlett, the principal economist at the Resolution Foundation, criticized the current statistics, stating, “Official statistics have misrepresented what has happened in the UK labour market since the pandemic, and left policymakers in the dark by painting an overly pessimistic picture of our labour market.”
The ONS, like other statistical agencies globally, has faced challenges with survey response rates post-COVID, leading to what BoE Governor Andrew Bailey has called “a substantial problem” in data reliability.
Using alternative data sources like tax records, self-employment figures, and new population statistics, the Resolution Foundation estimates that the employment rate might have actually returned to its pre-pandemic peak in 2023, only to slightly decline in 2024, aligning with 2019 levels. This contrasts sharply with the official figures which suggest a lower employment rate, despite high job vacancy rates and robust wage growth.
This discrepancy comes at a crucial time as the UK Prime Minister has set an ambitious goal to elevate the employment rate to 80%, starting from the current official estimate of 74.8%. Corlett emphasized the challenge this poses, “The government faces a significant challenge in aiming to raise employment, even if the rate is higher than previously thought. But crafting good policy is made harder still if the UK does not have reliable employment statistics.”
The Workers Union Says…
“The findings from the Resolution Foundation prompt a broader discussion on the need for more accurate economic indicators to ensure sound policy-making, potentially affecting everything from interest rates to employment initiatives. As the UK aims to navigate its post-pandemic economic recovery, the accuracy of these statistics could very well determine the trajectory of its UK workforce policies and economic strategies.”
