The U.K. labor market is navigating significant challenges as concerns over data quality disrupt economic assessments. The Office for National Statistics (ONS) has delayed crucial updates on key economic indicators, including inflation and employment statistics, leading to heightened scrutiny from various sectors, including the Bank of England’s Monetary Policy Committee (MPC).
Despite the recent de-equitisation trend in the U.K. stock market, there remains a variety of investment opportunities within the staffing and recruitment sectors. Among the notable companies still listed in London are smaller firms like Norman Broadbent and RTC Group, with market capitalizations around £60 million ($81 million). However, larger players dominate industry discussions, including Robert Walters, valued at £95 million, and SThree, which focuses on the STEM fields and is valued at £209 million.
The most prominent company in this sector is Hays, valued at £925 million, recognized for its extensive recruitment services and global reach. Founded in 1867, Hays has evolved significantly, transitioning from a diversified conglomerate into a specialized staffing agency. As it prepares to update investors on trading this Friday, analysts will closely examine its insights for indications about the current state of the U.K. job market.
Concerns about the reliability of the Labour Force Survey (LFS) have emerged as a key issue since the ONS suspended its publication in October 2023. This survey plays a critical role in determining the U.K.’s unemployment rate and informs the MPC’s decisions on interest rates. Andrew Bailey, Governor of the Bank of England, has expressed serious concerns about the accuracy of the LFS data, stating, “It is a substantial problem… when we don’t know how many people are participating in the economy.”
The ONS has acknowledged these issues, citing a sharp decline in survey responses, particularly after the pandemic. Internal communications revealed alarming statistics, including instances where the sample size for survey components dropped to just five individuals, leading to significant fluctuations in data points. A spokesperson for the ONS noted that efforts are underway to refocus resources on core economic outputs.
The implications of these data quality issues extend beyond the job market. The Department of Health relies on the LFS to assess the health of the working-age population, including those on long-term sickness benefits. The U.K. claimant count stood at 1.69 million as of August 2023, yet the number of economically inactive individuals remains concerning, with approximately 21.1% of working-age adults reported as inactive.
Ill-health is the leading cause of this inactivity. The Department for Work & Pensions has indicated that 90% of individuals on sickness benefits remain on them two years later. Recent reports suggest that around 5,000 individuals of working age are being shifted onto long-term sickness benefits daily, potentially leading to an annual expenditure of £100 billion on these payments by the end of the decade.
While there are concerns that the benefits system is being exploited, the government faced pressure from MPs earlier this year to avoid cuts to these benefits. Fiscal constraints may prompt future attempts to address the situation. At the same time, the U.K. economy still reflects a paradox, with approximately 728,000 job vacancies existing despite a declining unemployment rate.
This situation is exacerbated by a tightening visa regime and the increasing impact of artificial intelligence on the job market, particularly for entry-level graduate positions. The complexity of the U.K. jobs market continues to challenge economists, especially since the global financial crisis, when low unemployment persisted despite stagnating wage growth.
As firms like Hays prepare to share insights in the coming days, their commentary will be invaluable not only to investors but also to policymakers and analysts seeking to understand the evolving dynamics of the U.K. job market.
