What Is Going on in the U.K.’s Economy?

It might never be possible to know precisely how an economy is performing in any given moment. But recently it has gotten harder to get a clear picture of Britain’s economy, particularly the labor market.

This month, Britain’s Office for National Statistics delayed the release of its flagship report on jobs to give itself more time “to produce the best possible estimates” of how many people are working or not.

When it was released a week late on Tuesday, the report relied on a new “experimental” data series for the employment and unemployment rates, using tax and state benefit data instead of its traditional survey of households, which has become less reliable because more and more people are refusing to participate.

For some analysts, the new data raised concerns about the usefulness of the information, at a time when the labor market is under intense scrutiny. Policymakers at the Bank of England are parsing the employment data for signs of how persistent inflation so they can determine how aggressive monetary policy needs to be in response.

Tuesday’s data showed that the labor market was continuing to cool, following the same trend as the previous month, with more unemployment and fewer job vacancies. It’s the beginning of a turnaround that policymakers expect to ease persistently high inflation, which was stuck at 6.7 percent last month. The Bank of England has raised interest rates to their highest level since 2008, and officials have signaled they will remain high well into next year.

But the latest labor market release needs to be taken “with a huge pinch of salt,” Philip Shaw, an economist at Investec, wrote in an analyst note. Policymakers at the Bank of England have “lost another important set of figures” to guide them in setting interest rates, he argued.

The delayed report comes as broader questions have arisen about the quality of Britain’s economic measurements and forecasting. Last month, the statistics office issued a particularly large upward revision to the size of the economy after pandemic lockdowns. Other economic institutions, including the Bank of England, have been criticized for underestimating inflation, while an independent fiscal watchdog disclosed “genuine errors” in its forecasts.

Statisticians have recently been focused on how to get more real-time economic data amid a series of major disruptions to the economy, from the pandemic to the energy crisis. At the same time older data-collection methods have become harder to maintain in the digital age.

The Labor Force Survey, which began in 1973, aims to provide a comprehensive measure of how many people are and aren’t working, and why, based on tens of thousands of respondents. Households are questioned by phone every 13 weeks for five times.

The survey has suffered from a steeply declining response rate for many reasons, including that people increasingly do not want or do not have time to answer phone surveys. The pandemic also put an end to in-person interviews. The rate of people willing to take part has dropped to about 15 percent, from about 50 percent a decade ago.

The Office for National Statistics has been working on a “transformed” survey that will ask more people in new ways, mostly online, about their engagement with the job market. It will be used to publish data from next spring.

These “radical plans are part of a wider long-term strategy” to cut the reliance on traditional surveys, Darren Morgan of the statistics office wrote in a blog post on Tuesday. The agency is also using more data sources in other key statistics, including value-added-tax data to calculate gross domestic product and web-scraped store data to measure inflation.

During this transitional period, there will be some “temporary disruption,” the statistics office said.

But the new data series came after Bank of England policymakers expressed doubt about other data from the Office for National Statistics. Last month, the minutes of the central bank’s meeting noted that the O.N.S.’s wages data were difficult to reconcile with other data sources.

It all coincides with central bankers putting an extra emphasis on incoming economic data to guide their policy decisions, as they try to raise interest rates high enough to stamp out inflation without causing unnecessary economic harm.

At the moment, those decisions are hanging on a knife edge.

“Clearly the absence of key data on the labor market is unhelpful, especially at a time when ‘data dependency’ is the guiding principle” for policymakers, Mr. Shaw wrote.

Tony Wilson, the director of the Institute for Employment Studies, said Tuesday’s experimental data made it difficult to draw firm conclusions.

If “normal service” isn’t back soon, then it might take until next spring and the new Labor Force Survey “before we start to get a better idea of what is going on,” he said in a statement.

Two months ago the statistics office surprised economists with a large upward revision to gross domestic product in 2021. Rather than suffering a uniquely slow recovery from pandemic lockdowns, Britain’s economy had actually exceeded its prepandemic size by the end of that year. Previous estimates said it was about 1 percent smaller.

These revisions don’t make Britons any better or worse off than they were before, Huw Dixon, research lead for economic measurement at the National Institute of Economic and Social Research, said on the organization’s website this month.

“The measurements do, however, frame our perceived reality and in that sense, they feed into policy debates and the effectiveness or otherwise of government policies,” he said.

A fuzzy picture of the British economy may also affect investment decisions and Britain’s efforts to increase economic growth.

“Investors have seen the U.K. economy over the last few years through these regular releases of data that showed the U.K. lagging,” said Simon French, head of research at the investment bank Panmure Gordon. Lower share values and weaker investment trends could all be partly “a function of some of the pessimism around that has been associated with this data,” he said.

Sumber: www.nytimes.com

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