(Bloomberg) -- Britain has underestimated the number of people in employment by almost 1 million, according to a new report that casts further doubt on official estimates that are crucial for the Bank of England.
The Resolution Foundation said the employment rate has bounced back to pre-pandemic levels after its own estimates from tax and population data found an extra 930,000 more in work since 2019 than recorded by the Office for National Statistics.
It suggests worker inactivity is lower than thought, the think tank said, potentially rewriting the narrative of the labor market in recent years.
An error that large would be hugely consequential for BOE rate-setters who are struggling to gauge the tightness of the jobs market as they consider how quickly to reduce interest rates. BOE Governor Andrew Bailey and his colleagues have guided markets towards a “gradual” pace to rate cuts, though they warn that the ONS data problems have made making that judgment far more difficult.
Last year the ONS temporarily withdrew its key Labour Force Survey measuring unemployment, employment and economic inactivity after a plunge in response rates that threw into doubt its accuracy. While it is publishing the estimates again, officials do not trust the data and the ONS is working on a replacement survey.
“Official statistics have misrepresented what has happened in the UK labor market since the pandemic, and left policymakers in the dark by painting an overly pessimistic picture of our labour market,” said Adam Corlett, principal economist at the Resolution Foundation. “Crafting good policy is made harder still if the UK does not have reliable employment statistics.”
Its estimates suggest that the employment rate returned to its pre-pandemic peak in 2023 before dropping slightly this year to its current 76%, above the current official figure of 74.8%.
The Resolution Foundation said its findings point to economic inactivity — those neither in work nor seeking a job — being close to pre-pandemic levels. Reducing the post-pandemic surge in inactivity, particularly long-term illness, has been a key policy goal of the current and former government.
However, higher employment levels would also suggest that productivity has been worse than official estimates, a key factor in policymakers’ view on how quickly the UK economy can grow in the future without fueling inflation.
In a Parliamentary hearing on Tuesday, Bailey called the official labor market statistics “integral” as they provide the only gauge on worker participation rates in the UK. “That is a big signal on what we call the tightness of the labor market,“ he said.
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