The Bank of England governor acknowledged that policymakers have a difficult time with inaccurate data. He admitted that he wished that they had accurate numbers on unemployment.
Andrew Bailey said to an Italian audience that the UK job market is close to 100% employment, despite an increase of borrowing costs.
Bailey stated, “I wish that we knew the exact number of unemployed people in the UK, but it is clear to me that we are near or at full employment.”
His comments were made as the Office for National Statistics reported that the unemployment rate increased from 3.8 to 3.9 percent in January, despite forecasts for a flat line. It is still near a historical low.
ONS is currently revamping its labour-market survey. Since the pandemic, response rates have been falling. The ONS has resumed face to face interviews with respondents rather than telephone calls and has increased its sample size.
In response to these changes, the Bank has begun to rely on alternative labour market studies that measure employers’ expectations and demand for labor.
The cost of borrowing money and investing is increased, which leads to employers halting hiring and laying workers. Bailey, however, said that UK inflation was falling at a “unusual rate” that did not generate significant unemployment.
The trend is also mirrored in the US, and in the Eurozone where the unemployment rate is close to a historic low and consumer prices are falling steadily.
This is tentatively good. Bailey stated that the pattern of disinflation and full employment in modern history is unique.
The official figures showed that the wage growth, without bonuses, was also at 6.1 percent in the three-month period ending January. This is the lowest rate since summer 2022. The Bank’s monetary committee said that it needed to see more evidence about the slowing of earnings growth before it could begin cutting interest rates this year.
The governor stated that, despite a strong labour market “monetary policy plays its part” in reducing inflation. However, more research is needed to better understand the impact high interest rates have on workers and their jobs.
Bailey stated that “Monetary Policy is doing its work.” We can’t expect models to accurately predict pandemics or wars. Although we can use economics to guide us, they will not provide accurate paths.
The most important thing I believe is to model and understand the behavior of investment and labour markets. In our case, both have changed since the financial crises.