UK unemployment rate much lower than thought in late 2023

Britain’s unemployment rate was much lower late last year than previously thought, the Office for National Statistics said on Monday, citing re-weighted survey results that might add to the Bank of England’s caution about cutting interest rates quickly.

The new data – which reflect the latest estimates of Britain’s population – showed an unemployment rate of 3.9 per cent in the three months to November, compared with 4.2 per cent provided by the ONS last month on a temporary, experimental basis.

The BoE is watching Britain’s labour market closely as it considers whether inflation pressures in the economy have cooled enough for it to cut its benchmark interest rate from its highest level in nearly 16 years at 5.25 per cent.

The ONS said Britain’s inactivity rate – measuring people out of work and not looking for it – was estimated at 21.9 per cent over the same period, up from 20.8 per cent.

The re-weighted employment rate was estimated at 75.0 per cent in the new data, versus 75.8 per cent in the experimental series.

Samuel Tombs, an economist with consultancy Pantheon Macroeconomics, said Monday’s data would put pressure on BoE officials to wait before cutting interest rates, with the unemployment rate firmly on track to undershoot its forecasts.

“We still think that the (BoE) likely will reduce Bank Rate to 4.50 per cent by the end of this year, from 5.25 per cent, with the first step down coming in May – though the risks that the initial cut comes later are rising,” Tombs said.

Last week the BoE opened up the possibility of cutting rates as inflation falls and one of its policymakers cast a first vote for a reduction in borrowing costs since 2020.

The new labour estimates use the latest ONS estimates of the population to re-weight its Labour Force Survey (LFS), and include more young people and more women – both of whom helped to push down the employment rate and push up inactivity.

The ONS suspended publishing official LFS data in October due to low response rates in the aftermath of the COVID pandemic. It has instead published experimental estimates that relied on tax and other data sources.

The ONS plans to make its improved LFS survey the main source of data on the labour market from September 2024.

It cautioned against reading too much into the short-term changes in the headline rates in Monday’s data, as the re-weighting of the series did not fix the volatility in the data seen over recent months.

It recommended viewing the LFS data alongside other measures, such as its workforce jobs survey, the claimant count and tax data.

Data for previous three-month periods, going back to April-June 2023, showed smaller gaps or no change between the unemployment rate in the re-weighted LFS survey and the experimental data – and in one case a higher rate.

However, the re-weighted estimates were uniformly lower for the employment rate than in the experimental estimates and higher for the inactivity rate.