Labour market continued to cool over the summer – but data quality problems make it harder to make crucial decisions on interest rates and inactivity  

Delayed labour market data showed that the labour market continued to cool over the summer, with unemployment up and employment down. However, the poor quality of this data will hamper key decisions, including the Bank of England’s on interest rates and the Government’s on labour market inactivity, the Resolution Foundation said today (Tuesday).

The latest ONS labour market data, which combines today’s Labour Force Survey (LFS) with last week’s PAYE data from HMRC and claimant count data from the DWP, showed that in the three months to September employment was down 0.3 percentage points on the previous quarter, while unemployment was up 0.2 percentage points and economic inactivity up 0.1 percentage points.

The new data did not however tell us much about how unemployment or employment had changed over the past year, or whether inactivity due to ill-health – a trend that the March Budget focused on tackling – has continued rising. The new data lacks detail about which groups are being affected by unemployment or sickness. We also don’t know whether employment hasn’t risen at all in levels terms compared to before the pandemic, as the old LFS showed, or whether it’s risen by one million, as other data sources show.

The Foundation notes that the poor quality of the data, which is likely to continue until next Spring, presents a real problem for policy makers – for example the Monetary Policy Committee in the Bank of England – as they have to make key judgement without being fully informed of the health of the UK labour market.

Hannah Slaughter, Senior Economist at the Resolution Foundation, said:

“Today’s data showed that the labour market continued to cool over the summer, with employment falling and unemployment rising.

“But equally worrying is the state of the data, which makes it harder to assess the true health of the labour market. We still don’t know whether employment has failed to grown compared to before the pandemic, or risen by one million.

“This is particularly worrying for both the Chancellor as he prepares his Autumn Statement, and the Bank of England as they make crucial decisions in the coming months over whether to raise, hold or cut interest rates.”