After UK unemployment rose again, government minister Stephen Kinnock pointed to a different crisis — economic inactivity — as the real problem at the heart of the labor market. “People who can work should be working,” he said this week, echoing concerns in both Westminster and at the Bank of England.
Yet this particular crisis may already be over, at least according to Britain’s latest labor market survey.
While unemployment — a measure of people seeking work — edges up, worker inactivity — those neither in work nor looking for it — is easing back down. The inactivity rate has fallen to 21 percent, close to pre-pandemic norms and notably below the levels seen throughout the 2010s. That is down from a peak of 22.2 percent shortly after the pandemic, a trend that had made the UK an international outlier.
The number of people out of the workforce due to long-term sickness remains stubbornly high at 2.8 million. But that has been completely offset by other categories, including a sharp decline in early retirees and those caring for their family — a shift that may point to the financial strain being felt in households across the country.
“That’s all people who have to go out and work who would otherwise stay at home because money’s tight,” said Martin Beck, chief economist at WPI Strategy. “Maybe the factors behind it are indicative of some underlying problems that have affected the UK economy.”
Stubbornly high inflation in recent years may have forced people to rethink whether they need to work, even though price growth is finally cooling again.
ALSO READ: UK seals South Korea deal to trade 98% of goods tariff-free
Worker participation trends are vital for BOE rate-setters as a post-pandemic hit to labor supply added to pressure on inflation from a tight jobs market. It has also been a hot topic in Westminster, prompting the government to attempt a clampdown on welfare costs and launch a probe into youth inactivity led by former Health Secretary Alan Milburn.
The UK figures are from the Office for National Statistics’ Labour Force Survey, which has been dogged by accuracy concerns after its publication was temporarily suspended in late 2023. While those worries still linger, the ONS is more confident in the data after boosting the number of responses to the survey.
Its picture on inactivity chimes with other analysis, too. The BOE last month found that the ONS’s Workforce Jobs survey data also implied a participation rate close to that seen in the LFS.
“The economic inactivity ‘problem’ we face is one of stalled progress, not of overall deterioration,” wrote Nye Cominetti and Hannah Slaughter, economists at the Resolution Foundation. They said the decline in inactivity for retirement or family reasons is merely a continuation of a long-running trend.
The recent improvement puts the UK comfortably within the pack of Group of Seven countries rather than a major outlier, according to the BOE. It said that strong migration may have also played its part as the average age of arrivals into the UK is younger than the wider population.
BOE staff also pointed to people coming out of early retirement and a possible boost in participation among older Britons from remote working.
