MNI INTERVIEW: BOE May Overestimate Population, GDP Outlook

Bank of England estimates of a net outflow of about 200,000 workers since the Covid shock understate how many have left the UK, possibly pointing to labour shortages ahead and a weaker, choppier recovery than otherwise, the former head of the National Institute of Economic and Social Research (NIESR), told MNI.

While Jonathan Portes conceded that his own earlier headline-grabbing estimate that the UK workforce may have fallen by around 750,000 over a year now looks to have been too high, he stressed that the BOE number, based on tax data and included in May's Monetary Policy Report, fails to take account of the possibility that some workers may have continued to receive UK furlough payments after leaving the country. The reality probably lies somewhere between the two figures, he said in an interview, adding that self-employed workers taking cash payments may also have been more likely to depart than the Bank thinks.

Over-estimating the labour force entails over-estimating the sustainable level of growth, suggesting that the recovery "will run into labour shortages at least in some areas and some sectors more quickly than you would otherwise have thought and therefore growth will be less real growth and more inflation will be the result," Portes said.

The BOE in May forecast a relatively benign scenario of growth of 7.25% in 2021, then 5.75% in 2022 slowing to 1.25% in 2023 with inflation dropping back to the 2% target.

INADEQUATE STATISTICS

Payrolls statistics collected by the tax authority and Labour Force Survey figures based on contacting households have told wildly divergent stories, Portes noted. While LFS data indicated the number of employees has risen by 100,000 on pre-pandemic levels, tax reporting showed an 800,000 fall in company payrolls, with the Bank stating that only 200,000 of that gap was explicable by population measurement. Another distortion comes from the switch by the Office for National Statistics to remote data collection for the LFS as Covid-19 hit.

"Since the pandemic, non-response rates have absolutely soared ... non-response rates were already higher for migrants … but, this is the crucial point, they seem to have gone up even more for migrants than non-migrants," Portes said, although he admitted that this data now suggests that his own 'rough and ready' estimate of a population decline of as much as 1.3 million published by the Economic Statistics Centre of Excellence in January was too high.

While the ONS is now overhauling its methodology for population estimates, the inadequacies of UK demographic statistics mean that the truth may never be known, he added.