David Milliken

LONDON (Reuters] – Britain’s economy has reverted to its pre-COVID size in the last year but it is still struggling. There are 400,000 fewer people than there were at the beginning of the pandemic.

This contrasts with other rich, large economies that have seen a greater recovery of the labour force. Additionally, it adds to inflation fears by the Bank of England after it was pushed to an all-time high of 40 years due to surging energy prices.

Fears that a tight labor market could limit growth and increase wages will make it more difficult to achieve inflation’s target, according to the central bank.

Many people have quit the workforce for lack of work: The amount of job opportunities advertised was greater than the number looking for work. This year’s unemployment rate has been the lowest since 1970.

Britain is seeing a rise in long-term illness. This could be due to the effects of high COVID rates and a exodus from older workers.

The Bank of England does not believe any of these issues will change anytime soon. The pool of European Union workers is no longer available following Brexit. This could lead to Britain falling into a stagnation rut.

Britain was a country that enjoyed high levels of participation and stable labour force growth before the pandemic.

In the fourth quarter 2019, 34.2 million people were looking for work or employed in Britain. However, it was down to 33.8 millions by the beginning of 2019.

Here, Britain is the exception. According to OECD data Italy is the only country in the Group of Seven that has experienced a larger percentage decrease in the number of people aged 15 to 64 who are active in its work force. Britain has seen a greater increase in the level of inactivity than its counterparts.

Britain is experiencing its longest decline in workforce since 1990, when recessions caused unemployment to rise and people stopped looking for work.

Andrew Bailey from the BoE stated earlier in this month, “The persistence of this drop is a surprise to me.” This was as Bailey sought to show lawmakers why British inflation forecasts are stickingier than other countries. a06f1014-e6b2-441a-96a6-7940d660ef7d1

UK workforce shrinks more than most in G7: https://graphics.reuters.com/BRITAIN-ECONOMY/EMPLOYMENT/xmvjoxjnxpr/chart.png

SICKER BRITS

Between the fourth quarter 2019 and the first half of 2022, 233,000 workers left due to long-term illness. This is almost two thirds the outflow. Full-time studies accounted for 55,000 departures, while 49,000 were taken early retirement.

A major category that has suffered a decline is looking after the family/home. 156,000 people are citing it now as a reason to quit their job than in 2018.

Hannah Slaughter is an economist with the Resolution Foundation. She said that this may reflect the ease of juggling a job and other duties when working remotely during the pandemic. 5d92dc04-1e12-4f05-96ca-c2281215004c2

Long-term illness is behind smaller UK workforce: https://graphics.reuters.com/BRITAIN-ECONOMY/EMPLOYMENT/lgpdwejravo/chart.png

LONG COVID TO BLAME?

It is difficult to determine how much COVID directly contributed to the rise in long-term illness.

About 1.8million Britons claimed that COVID symptoms lasted over a month in April. 346,000 said that their condition “limited a lot” of their everyday activities.

BoE policymaker Michael Saunders suggested that more Britons could be too sick to work due to a rise in non-emergency waiting times.

It is difficult to locate comparable data from other countries. An EU annual figure shows no trend in the proportion of disabled workers between 2019 and 2021. This includes a drastic fall in France as well as a significant rise in Italy.

Comparing Spain with the United States might indicate that the severeness of the pandemic played some role. Spain, which has a 13% lower death rate from COVID than Britain, shows that there was a 4 percent increase in sick people in Spain between 2019 and 2022. This compares with the 12% rise in Britain. e790a586-e1c0-49b8-b9c1-f01fa27e82b53

Britain has bigger rise in sickness than Spain: https://graphics.reuters.com/BRITAIN-ECONOMY/EMPLOYMENT/byvrjdxomve/chart.png

NO REMISSION

The strong British labour market demand – with wages rising by an average 7% annually in the first quarter of the year – was a factor that encouraged more people to get into employment and brought in EU workers when needed.

However, the UK has seen a decline in the number EU-nationals who work here over the last two years while the non-EU population has increased by 182,000. Hiring from abroad is more complicated as most foreign workers need a visa. It’s also becoming harder to find qualified candidates for vacancies.

Saunders suggested that Brexit may limit how much domestic skill shortages or strains of capacity can be alleviated by imports and outward migration.

In its most recent forecasts, the BoE reduced its estimates of labour force participation and expects further declines in the future. However, a slowdown due to high inflation will likely push unemployment up.

A majority of people who don’t work due to illness also say that they aren’t interested in a job.