It’s ‘national sickie day’ – is ill-health holding back the UK economy?

The first Monday of February is apparently the most popular day for employees to call in sick, so the timing of the latest labour market health check by Britain’s number crunchers could scarcely have better.

According to the latest evidence the UK has an even bigger problem with inactivity due to long-term sickness than previously thought.

Fresh figures from the Office for National Statistics suggest there are now 2.8 million people classified as not looking for work because of health issues – up from the 2.6 million previously estimated and a one-third increase on the 2.1 million before the Covid-19 pandemic.

The ONS has rejigged its view of what has been happening to employment, unemployment and inactivity in order to take account of the fact the size of the UK’s population has been revised up. Its tentative conclusions are that the labour market is bigger, sicker and tighter than the old data suggested.

While the ONS was at pains to caution against reading too much into its new estimates, they show that employment is 170,000 higher than was thought but there are more prime age (16- to 64-year-old) people not working or looking for jobs, and long-term sickness now accounts for more than 30% of inactivity.

Hannah Slaughter, a senior economist at the Resolution Foundation thinktank, said: “Tackling rising ill-health is a huge social and economic challenges that we’ll be facing throughout the 2020s, as will getting the UK employment back up to and beyond pre-pandemic levels.”

The ONS view of recent short-term developments has also changed. It believes unemployment stood at 3.9% in the three months ending in November last year, lower than its previous 4.2% estimate.

The Bank of England is closely monitoring the labour market for signs of an easing of pay pressure. Analysts said the new ONS estimates might make Threadneedle Street’s monetary policy committee more cautious about cutting interest rates.

“The new figures show that the labour market is tighter than believed previously. Furthermore there is no evidence that conditions have loosened recently,” said Philip Shaw of Investec.

James Moberly of Goldman Sachs said: “The reduction in the unemployment rate suggests that progress on labour market rebalancing may have stalled, which has somewhat hawkish implications for the Bank.”

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The reason the ONS warned against reading too much into the new data is that it lacks a complete picture of the labour market after suspending statistics from what had been its main gauge of developments – the Labour Force Survey – on the grounds that weak response rates made the results unreliable.

The LFS was replaced by an experimental series based on a range of sources including the claimant count and PAYE data. It will take until September before the ONS is ready to announce its replacement for the LFS.

Samuel Tombs, the chief UK economist at Pantheon Macro, said the ONS still had “little faith” in the quality of its figures and was only willing to say that unemployment rate “may have fallen”. He said more recent evidence, including rising redundancy notifications, showed rising unemployment.


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