The UK’s unemployment rate rose to 4.2% in the three months to September, according to the latest official data released on Tuesday. However, analysts have warned that the figures are “deeply flawed” and do not reflect the true state of the labour market, which is facing multiple challenges from the pandemic, Brexit, and stagflation.
ONS admits data issues with labour force survey
The Office for National Statistics (ONS) said that the unemployment rate increased from 4.1% in the previous quarter, and that the number of people out of work rose by 88,000 to 1.4 million. However, it also admitted that there were “data quality issues” with its labour force survey, which is based on interviews with households.
The ONS said that it had difficulties in contacting some groups of people, such as young people and those living in rented accommodation, and that this may have affected the representativeness of the sample. It also said that some respondents may have misreported their employment status, as they were unsure whether they were still employed or not.
The ONS said that it had introduced a new method to adjust for these problems, and that the new estimates should be treated as “experimental”. It also said that it was working to improve the quality of its data collection and analysis.
Analysts question reliability and relevance of ONS data
Some analysts have questioned the reliability and relevance of the ONS data, given the data quality issues and the fast-changing nature of the labour market. They have argued that the ONS data may be underestimating the extent of unemployment and underemployment in the UK, and that other indicators may provide a more accurate picture of the situation.
For example, Jonathan Athow, deputy national statistician at the ONS, said that there were signs of “labour market mismatch”, as some sectors faced labour shortages while others had excess workers. He said that this could be seen in the record number of vacancies, which reached 1.2 million in September, as well as in the rising wages, which increased by 8.3% year-on-year in nominal terms.
However, he also said that some of these trends may be temporary or distorted by factors such as the furlough scheme, which ended on September 30, and the base effects from last year’s lockdowns. He said that it would take some time to see how the labour market would adjust to the new conditions.
Another indicator that may suggest a more pessimistic outlook for the labour market is the claimant count, which measures the number of people claiming unemployment-related benefits. This measure increased by 29,000 to 2.5 million in September, and was 58.5% higher than before the pandemic.
UK braced for prolonged period of stagflation
The UK’s labour market is also facing a prolonged period of stagflation, which is a combination of low or negative economic growth and high inflation. This could put further pressure on workers and businesses, as well as on policymakers who have to balance between supporting the recovery and controlling inflation.
Last week, official data showed that consumer prices increased at an annual rate of 7% in March, the fastest pace since 1992. By contrast, growth in gross domestic product slowed to just 0.1% in August, compared with 1% in July. Some analysts have warned that the UK economy could even contract in the fourth quarter of this year.
The main drivers of inflation in the UK are global supply chain disruptions, rising energy prices, and labour shortages in some sectors. These factors are expected to persist for some time, as the pandemic continues to affect production and trade around the world. The Bank of England has forecast that inflation could peak at 8% early next year.
The Bank of England is facing a dilemma over whether to raise interest rates to curb inflation or to keep them low to support growth. The central bank has signalled that it may hike rates sooner than expected, possibly as early as next month. However, some economists have argued that raising rates too soon or too fast could harm the recovery and worsen unemployment.
