- Andrew Bailey revealed this figure at a recent Select Committee hearing.
- This illustrates the difficulty banks face in determining economic conditions.
- Conflicting data published by ONS means rate setters are ‘acting blind’
Bank of England Governor Andrew Bailey has admitted that the UK’s official employment numbers could change by up to a million jobs ahead of the Bank of England’s next interest rate decision.
Governor Bailey disclosed this figure at a recent ad hoc committee hearing to illustrate the difficulties the Bank faces in determining economic conditions.
Some experts say discrepancies in data published by the Office for National Statistics (ONS) mean rate setters are “flying blind” due to a lack of hard information on employment numbers. states that they are doing so.
“We are certainly flying in the fog when it comes to the labor market,” said Andy Haldane, former chief economist at the Bank of England.
Harriet Baldwin, chair of the Treasury Select Committee, where Mr Baillie spoke, said that with the central bank’s deliberations on interest rates affecting millions of people, “it is important that we address this uncertainty urgently.” ‘ he told the Mail on Sunday.
Mr Bailey told the hearing how the two datasets paint a different picture of how the job market has fared compared to pre-COVID-19 levels.
The Labor Force Survey (LFS), the ONS’ preferred measure of employment, puts the number of people in work at just under 33 million.
“The LFS suggests that employment is around 0.2% above pre-corona levels,” Mr Bailey told MPs. But he added: “A separate ONS survey, the Employee Employment Survey, suggests that the workforce is 2.8% above pre-COVID-19 levels.” If you put that into numbers, it would be about 1 million people.
The LFS measures the number of people working, whereas the Labor Force Report records jobs, and some people have more than one job, so the surveys are not directly comparable. However, Mr Bailey hinted that this was not enough to explain the divergence, as both typically increase at a similar pace.
If the number of employees had grown by the same amount as the number of employees, that number would have been just under 34 million people, a difference of nearly 1 million people.
A better understanding of the health of the job market is critical to determining how long the central bank needs to keep interest rates high to bring inflation down to 2%.
“It’s really important that we get the best possible look at this issue because it’s a critical part of the next step, the last mile, of getting inflation back on target,” Bailey said. Stated.
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“I think the ONS is doing all the right things, but we really need those things because it helps us see more clearly.”
The ONS is reviewing the way it compiles employment data following reliability concerns. In the meantime, numerical experts rely on an experimental version of his LFS.
New employment and wage figures are due to be released on Tuesday, two days before the central bank’s next decision on interest rates. Although the central bank has signaled that interest rates will need to remain high for an extended period of time, markets believe they will start falling from the middle of next year. The benchmark interest rate is expected to remain unchanged at 5.25% at the next Monetary Policy Committee (MPC) meeting on Thursday.
One concern is that the central bank could risk a recession if it waits to cut interest rates due to misleading labor market data. “It’s not just Mr Bailey, we’re all flying blind,” said Simon French, chief economist at Panmure Gordon.
He added: “If the data is off-beam, rates could remain high for an extended period of time and demand could be suppressed more aggressively than planned.”
Suren Till, head of economics at the Institute of Chartered Accountants in England and Wales, said: “Uncertainty about accuracy means policy makers don’t have a complete picture of the situation, which can lead to harmful mistakes. There is a gender,” he said.
“I am concerned about the accuracy of the employment data used by the MPC,” Selection Committee Chair Baldwin said. Employment statistics are an important part of a complex picture, so it is important to address this uncertainty quickly.
“We must ensure that decisions that affect the lives of millions of British people are based on as much evidence as possible to support them.”
The ONS and the bank declined to comment. The central bank previously said that while there was “increasing uncertainty” in the LFS statistics, its view on the labor market was based on a “wide range” of data.
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