Doubts Still Dog Rejigged U.K. Labor Figures

Policymakers at the Bank of England will likely stay cautious about the data.
Policymakers at the Bank of England will likely stay cautious about the data.

Summary

Skepticism remains high surrounding U.K. labor-market data, troubled by contradictory figures and low response rates, as the country’s statistics agency relaunches its key survey of unemployment.

Skepticism remains high surrounding U.K. labor-market data, troubled by contradictory figures and low response rates, as the country’s statistics agency relaunches its key survey of unemployment.

The Office of National Statistics halted publication of its headline measure for unemployment, named the Labor Force Survey, in the fall amid a collapse in the number of responses and uncertainty over population and demographic trends.

Last week, the ONS said it resolved some of the weighting issues in its population data, and would relaunch the survey on Tuesday. It will again be updated to account for the impact of face-to-face interviews and larger sample sizes in September, when the agency refreshes the survey as a “transformed" LFS.

However, serious questions remain over the survey, most clearly that the issue of response rates hasn’t immediately been solved, Deutsche Bank economist Sanjay Raja said in a note.

The ONS revised its figures earlier this month to say that the U.K.’s unemployment rate was 3.9% in the three months to November, lower than the previously published rate of 4.2%. That meant that rather than holding steady, unemployment fell toward the end of 2023, indicating the jobs market was markedly tighter than previously thought.

Further revisions to that figure could still be made, especially a possible higher jobless rate, given readings from claimant-count figures, taxation data, and increased redundancies, Raja said.

“We see a falling jobless rate as less plausible given the weakness in demand across the economy, alongside several survey and hard data points," he noted.

Indeed, lower unemployment jars with signals of easing wage growth and falling vacancies over the same period, Barclays analysts Jack Meaning and Abbas Khan wrote in a note.

“We retain some skepticism of the data," they said.

Policymakers at the Bank of England will likely also stay cautious, as the conflicting data are part of the bank’s calculations in deciding monetary policy.

At first glance, the revised, lower unemployment rate undermines the case for the BOE to cut interest rates sooner rather than later, Samuel Tombs and Gabriella Dickens, economists at Pantheon Economics, said in a note.

But further drops in employment remain likely in the coming quarters considering weaker demand, higher wage growth, increased interest costs and evidence of less labor hoarding, Deutsche Bank’s Raja said.

Rather than unemployment, it will be pay growth that will ultimately be the key data point to watch on Tuesday, reflecting cooling labor-market trends, with recent wage surveys already pointing to a slowdown, he added.

Write to Ed Frankl at edward.frankl@wsj.com

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