(Bloomberg) — Britain has underestimated the number of employees by nearly 1 million, according to a new report that casts even more doubt on official estimates that are crucial to the Bank of England.

The Resolution Foundation said the employment rate had returned to pre-pandemic levels after its own estimates from tax and population data found 930,000 more jobs in 2019 than recorded by the Office for National Statistics.

This suggests worker inactivity is lower than previously thought, the think tank said, potentially rewriting the labor market narrative of recent years.

Such a large error would have enormous consequences for the BOE’s rate-setters, who are struggling to gauge the tightness of the jobs market as they consider how quickly to cut interest rates. BOE Governor Andrew Bailey and his colleagues have steered markets towards a “gradual” pace of rate cuts, although they warn that problems with the ONS data have made that judgment much more difficult.

Last year, the ONS temporarily withdrew its key labor force survey that measures unemployment, employment and economic inactivity after a drop in response rates cast doubt on its accuracy. While they publish the estimates again, officials do not trust the data and the ONS is working on a replacement survey.

“Official statistics have misrepresented what has happened in the UK labor market since the pandemic and left policymakers in the dark, painting an overly pessimistic picture of our labor market,” said Adam Corlett, chief economist at the Resolution Foundation. “Developing good policy becomes even more difficult if the UK does not have reliable employment statistics.”

Its estimates suggest the employment rate returns to its pre-pandemic peak in 2023, before falling slightly this year to 76% today, above the current official figure of 74.8%.

The Resolution Foundation said its findings indicate that economic inactivity – those neither working nor looking for work – is close to pre-pandemic levels. Reducing the rise in post-pandemic inactivity, particularly long-term illness, has been a key policy objective of the current and former governments.

However, higher employment levels would also suggest that productivity was weaker than official estimates, a key factor in policymakers’ view of how fast the UK economy can grow in the future without fuel inflation.

In a parliamentary hearing on Tuesday, Bailey called official labor market statistics “comprehensive” because they provide the only indicator of the UK’s labor participation rates. “This is a big signal for what we call labor market tightening,” he said.

©2024 Bloomberg LP