Market Analysis

The persistent rise in working-age people who are not employed and not seeking work in Britain, even four years after the COVID-19 pandemic began, is a significant economic challenge. This trend is unique to Britain among the Group of Seven (G7) economies, impacting its growth and contributing to inflationary pressures.

When a smaller portion of the population is actively participating in the workforce, it can lead to lower economic output unless matched by a decrease in demand for goods and services. However, if demand remains high, it can contribute to inflationary pressures.

The Office for Budget Responsibility (OBR) has highlighted that the increasing rate of labor market inactivity is likely to offset the positive effects of population growth on the economy. The Bank of England is concerned that a smaller workforce could exacerbate labor shortages, leading to upward pressure on wages and making it difficult to lower interest rates.

Official data indicates that the inactivity rate in Britain has reached an eight-and-a-half-year high, with more than one in five Britons aged 16-64 neither working nor actively seeking employment. This trend is concerning for the government, as it has implications for public finances, the benefits system, and the overall well-being of the population.

The reasons for economic inactivity vary, including factors such as illness, early retirement, and full-time education. While some individuals may be on a waiting list for healthcare treatment, this does not appear to be a significant driver of increased inactivity due to long-term sickness.

Addressing the rise in economic inactivity will require targeted policies to support individuals in rejoining the workforce, as well as efforts to address underlying issues such as healthcare access and education. Failure to tackle this issue could have long-lasting effects on the economy and society as a whole.

Paraphrasing text from "Investing UK" all rights reserved by the original author.