Bailey: Jobs data may be out by one million
Bank of England ‘flying blind’ ahead of interest rates decision due to doubts over the stats
By John-Paul Ford Rojas
BRITAIN’S official employment figure could be out by as much as a million, Bank of England Governor Andrew Bailey has admitted ahead of the Bank’s next interest rate decision.
Bailey revealed the figure during a recent select committee hearing to illustrate the difficulty the Bank faces when judging the state of the economy.
Some experts say discrepancies in data published by the Office for National Statistics (ONS) mean rate-setters are ‘flying blind’ because they lack solid information on how many people are employed.
Former Bank of England chief economist Andy Haldane said: ‘They’re certainly flying in fog about the labour market.’
Harriett Baldwin, chair of the Treasury Select Committee, to whom Bailey made the remarks, told The Mail on Sunday it was ‘critical that this uncertainty is dealt with urgently’ as the Bank’s deliberations on interest rates affect millions of people.
Bailey told the hearing how two sets of data are painting different pictures of how the jobs market has performed compared with pre-Covid levels.
According to the ONS’s preferred measure of employment, the Labour Force Survey (LFS), the number of people in work is just under 33million.
‘The LFS suggests that employment is about 0.2 per cent above its pre-Covid level,’ Bailey told MPs. But he added: ‘There’s another ONS survey, the workforce jobs survey, which suggests it’s 2.8 per cent above its pre-Covid level. If you turn that into numbers that’s about a million people.’
The surveys are not directly comparable, as the LFS measures the number of people in work, while the workforce report records jobs – and some people have more than one. But Bailey implied that this is not enough to account for the divergence, as both would normally increase at a similar pace.
If the employment figure had grown by as much as the jobs number, it would have reached just under 34million – a difference of nearly a million.
A good understanding of the health of the jobs market is crucial in helping the Bank judge how long it must keep interest rates high as it battles to bring inflation down to 2 per cent.
‘It is very important we get as good a line of sight to this question as possible because it is a key part of the last mile – this next phase to get inflation back down to target,’ Bailey said.
‘I think the ONS are doing all the right things but we really need those things because it will help us to see more clearly.’
The ONS is shaking up how it compiles employment data after reliability concerns. In the meantime, the number crunchers are relying on an experimental version of the LFS.
New job and wage figures will be published on Tuesday, two days before the Bank’s next decision on interest rates. The Bank has signalled that rates will have to stay high for a prolonged period – though markets think they will start to come down from the middle of next year. The base rate is expected to be held at 5.25 per cent at the next meeting of the rate-setting Monetary Policy Committee (MPC) on Thursday.
One fear is that the Bank could risk a recession by waiting to cut rates due to misleading labour market data. Simon French, chief economist at Panmure Gordon, said it was ‘not just Bailey, we’re all flying blind’.
He added: ‘If the data is off beam then rates may stay high for too long, with demand more aggressively crushed than planned.’
Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, said: ‘Any uncertainty over accuracy means policy makers are not seeing a full picture of conditions, which can lead to damaging mistakes.’
Baldwin, the select committee chair, said: ‘I am concerned about the accuracy of the employment data used by the MPC. Employment figures are a significant part of a complex picture so it’s critical this uncertainty is dealt with urgently.
‘We must ensure decisions which affect the lives of millions of British people are taken with as much evidence to support them as possible.’
The ONS and Bank declined to comment. The Bank has previously said that while there are ‘increased uncertainties’ in the LFS figures, its view on the labour market is informed by a ‘wide range’ of data.
Financial Mail On Sunday
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