ONS error could put more pressure on Bank of England

A blunder revealed by the Office for National Statistics (ONS) in measuring labour market data could have implications for interest rates.

The UK’s largest independent producer of official statistics revealed the error when it issued a correction on unit labour costs, which measure the cost of labour to employers for a unit of output.

The initial data revealed by the ONS stated that annual unit labour costs rose by 1.6 per cent in the second quarter, 0.8 per cent lower than correct figure of 2.4 per cent.
Office for National Statistics blunder could add to the pressure for an interest rate hike.

In a statement published by the ONS it said: ‘As announced on 06 October 2017, an error occurred in unit labour cost data. We have corrected this error in this release.’

‘This was due to income data from the second estimate of GDP being using instead of data from quarterly national accounts. You can see the original content in the superseded version. We apologise for any inconvenience.’

The error, which exaggerated labour costs versus productivity growth, is significant for policymakers at the Bank of England as when setting interest rates this is one of the key data points it uses to make decisions.

Simon Ward, an economist at investors Janus Henderson, who contacted the ONS on Friday when the error was spotted said: ‘Obviously the new figure is much higher than expected.’

‘Bank staff thought the trend was below two per cent, which supported the idea inflation would get back to target in the medium term, but obviously this casts significant doubt on that.’

Bank officials have signaled they are preparing for an increase in interest rates this year due to rising inflation, linked to the Brexit-induced collapse in the pound.

Source for figures : Office for National Statistics

Source for figures : Office for National Statistics

Fabrice Montagne, chief UK and senior European economist at Barclays, believes the data from ONS will not make a significant impact however.

He said: ‘While unit labour costs are now somewhat higher than previously, Unit Wages Costs and productivity are unchanged meaning that the new series are based on new (higher) non-wages costs.

‘As there is little the Bank can do against non-wage costs, there is no new news in the data that strengthens the Bank of England’s case to hike.’

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