Finance and Business

The Impact of Prolonged Sickness on the UK Economy

As the first Monday of February dawns, it is dubbed 'national sickie day,' marking the day when employees are most likely to call in sick. This timing aligns with the release of the latest labour market health check by Britain's Office for National Statistics (ONS), shedding light on the repercussions of prolonged sickness on the UK economy.

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Growing Concerns on Long-Term Sickness

The ONS figures reveal a concerning trend – the UK grapples with a more extensive issue of inactivity due to long-term sickness than previously acknowledged. Recent data indicates that 2.8 million people are now classified as not seeking work due to health issues, a significant increase from the earlier estimate of 2.6 million. This marks a one-third surge from the pre-pandemic figure of 2.1 million.

Reassessing the Labour Market Landscape

In an effort to present a more accurate portrayal of employment, unemployment, and inactivity, the ONS has revised its perspective to account for an increased UK population. The tentative conclusions indicate a labour market that is not only larger but also grappling with heightened health challenges. While employment appears to be 170,000 higher than previously thought, the number of prime-age individuals (16 to 64 years old) not engaged in work or job-seeking has risen. Long-term sickness now constitutes over 30% of this inactivity.

Expert Insights and Cautionary Notes

Hannah Slaughter, a senior economist at the Resolution Foundation thinktank, underscores the magnitude of the challenge: "Tackling rising ill-health is a huge social and economic challenge that we'll be facing throughout the 2020s, as will getting the UK employment back up to and beyond pre-pandemic levels."

The ONS, cautious about overinterpretation, urges restraint in drawing conclusions from the new estimates. However, these figures indicate that not only is the labour market more expansive than previously believed, but it also grapples with a significant health-related dimension.

Altered Perspectives on Unemployment

The ONS has adjusted its short-term views on unemployment as well. The unemployment rate, previously estimated at 4.2% for the three months ending in November, has been revised down to 3.9%. This change has prompted scrutiny from institutions like the Bank of England, which closely monitors the labour market for signs of easing pay pressure.

Philip Shaw of Investec notes, "The new figures show that the labour market is tighter than believed previously. Furthermore, there is no evidence that conditions have loosened recently." This perspective might lead the Bank of England's monetary policy committee to exercise caution in considering interest rate cuts.

A Sceptical Outlook and Future Plans

Despite the adjustments, scepticism remains about the reliability of the data. Samuel Tombs, the chief UK economist at Pantheon Macro, suggests that the ONS still has "little faith" in the quality of its figures. He points out that more recent evidence, including rising redundancy notifications, indicates a potential rise in unemployment.

The ONS, aware of the limitations in its current data due to the suspension of the Labour Force Survey, aims to introduce a replacement by September. Until then, the labour market's nuanced dynamics, influenced by prolonged sickness and shifting employment patterns, continue to unfold, prompting a thorough evaluation of the economic landscape in the United Kingdom.