UK lags G7 as labour market ‘inactivity' hits eight-year high
News wire -- Four years since the outbreak of the COVID-19 pandemic, Britain remains beset by a persistent rise in working-age people who do not have a job and are not seeking one, a trend that sets it apart from its peers.
Britain is the only Group of Seven economy where the share of workingage people outside the workforce remains higher than before the pandemic, slowing its growth and boosting inflation.
A smaller size of the workforce in proportion to the population typically reduces average economic output, which if not matched by an equivalent drop in demand for goods and services puts upward pressure on inflation.
The country's fiscal watchdog, the Office for Budget Responsibility, says rising labour market inactivity is likely to cancel out the positive impact on the economy of a growing population and last month it cut its estimate for output per person, in part because of the problem.
Last July, the OBR estimated a 1.2 percentage point rise in the inactivity rate would reduce gross domestic product by 1.5% and increase annual government borrowing by 21 billion pounds ($26 billion).
The Bank of England is worried that a smaller workforce will sustain inflation by increasing labour shortages and keeping pressure on wages, making it harder to cut interest rates. Official data showed the inactivity rate hit an eight-and-a-halfyear high, with more than one in five Britons aged 16-64 neither working nor looking for work.
"Rising inactivity - and its impact on the public finances, the benefits system, and people's wider health and wellbeing - is one of the biggest economic challenges facing both this government, and whoever wins the next election," said Charlie McCurdy, an economist at the Resolution Foundation think tank.
People are considered economically inactive if they do not have a job and have not looked for work in the past four weeks, or are not ready to start one in the next two weeks.
That can include full-time students whose education is usually pays off
over the longer term - and a small number of people who have given up
looking for a job. But it also covers the sick and early retirees.