The British economy's performance, especially the labor market, is becoming harder to comprehend due to changes in data collection methods and a decline in survey response rates. This has led to the Office for National Statistics (ONS) delaying its flagship jobs report to improve employment and unemployment rate estimates. The new method replaces conventional household surveys with an "experimental" data series derived from tax and state benefit data. This shift was triggered by a decrease in survey participation.
The latest data reveals a slowing labor market with rising unemployment and fewer job vacancies, a trend expected to moderate the currently high inflation rates of 6.7%. However, these changes have raised concerns about the reliability of this new data during a period of intense scrutiny of the labor market. Bank of England policymakers are examining this employment data to understand inflation persistence and adjust monetary policy accordingly.
Investec economist Philip Shaw advises that this latest labor market data should be treated with caution. He argues that Bank of England policymakers have lost another crucial set of figures for guiding interest rate decisions amidst broader concerns over the quality of Britain's economic measurements and forecasting.
The ONS is developing a revamped survey, the Labor Force Survey, which will ask more people online about their job market involvement. Data from this new method is expected to be published next spring. This initiative is part of a long-term strategy to reduce reliance on traditional surveys, with more data sources being used in other key statistics, such as value-added-tax data for calculating GDP and web-scraped store data for inflation calculation.
This transition period is anticipated to cause temporary disruptions. Last month, Bank of England policymakers expressed doubts about other ONS data, specifically wages data which were challenging to reconcile with other sources. Central bankers are emphasizing the importance of incoming economic data to guide policy decisions as they seek to raise interest rates appropriately to curb inflation without causing unnecessary economic harm.
The absence of critical labor market data is detrimental at a time when 'data dependency' is the guiding principle for policymakers. The new Labor Force Survey due next spring might provide better insights into the labor market situation. Meanwhile, revisions in GDP measurements have surprised economists, indicating that Britain's economy had surpassed its pre-pandemic size by the end of 2021, contrary to prior estimates. These revisions have significant implications for policy debates, government policy effectiveness, investment decisions, and efforts to stimulate economic growth.
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