It was stated that Britain’s labour market is tighter than expected, reflecting changes to population estimates in official data that showed more young people of working age than before.
Unemployment by the new measure was 3.9% in the three months through November, well below the 4.2% estimated using previous data, the Office for National Statistics (ONS) said on Monday (February 5).
The lower unemployment rate reflected changes in the shape of the population, with fewer middle-aged and older people of working age and younger.
Since younger people are more likely to be in education, that drove up the inactivity rate of people who are neither in work nor looking for jobs.
The combination of those factors suggests the labour market has not loosened as much as thought and may be feeding more upward pressure on wages and prices. That may help persuade the Bank of England (BOE) to wait longer before starting to cut interest rates.
“Downward revision of the unemployment rate increases pressure on the monetary policy committee to wait,” said Samuel Tombs, a UK economist at Pantheon Marcoeconomics.
The figures draw to a close a four-month period during which the ONS withdrew its flagship Labour Force Survey (LFS) after poor response rates from people it polled.
The series was suspended in October. The use of out-of-date population data was another factor that made the survey less reliable.
The ONS cautioned about reading too much into this data, saying it’s still working on improvements to its methods that won’t take full force until September.
The figures as they stand suggest the labour market is quite a bit tighter than the BOE is thinking.
At the beginning of 2024, the central bank forecasted unemployment to be 4.3% in the fourth quarter of last year and 4.4% in the first three months of 2024. The ONS will deliver figures for December and the final quarter of last year on Feb 13.
The report also showed:
The size of the UK population aged 16 and over was between 500,000 an 750,000 larger than thought over the period between July 2022 and November 2023.
“This shows that the population is estimated to have increased more quickly than was originally thought,” the ONS said.
The changes were driven by increases in the population share for those aged 16 to 24, which “puts upward pressure on unemployment and inactivity rates, and downward pressure on the employment rate”.
The employment rate was 75% in the quarter through November, lower than the experimental estimate of 75.8%.
The number of people in employment was 88,000 larger in the three months to November 2023 than had been thought, at 33.13 million.
Inactivity accounted for 21.9% of the age group, up from the experimental estimate of 20.8%.
The number of inactive people was 9.25 million, up from the previous estimate of 8.68 million.
The BOE is looking for more evidence that the labour market is cooling before it cuts rates from the current level of 5.25%. BOE chief economist Huw Pill last week said rate cuts were “some way off”. Markets expect a first cut around June.
Low unemployment and weak levels of worker participation in the jobs market remain an obstacle, the BOE said last week, since they add to upward pressure on wages and prices.
Participation had fallen dramatically in and after the Covid-19 pandemic, but the more recent data showed that people are returning to the labour force.
“Although loosening, the labour market remains tight,” the BOE said last week.
Its updated LFS figures covered the period since July to September last year. The complete dataset will be released alongside new jobs data next week. – Bloomberg
