Policy makers keep a close eye on labour market slack as they believe it is key to predicting when inflation may rise, and thus it impacts their interest rate decision. However, there is no consensus view as to how much slack there is.
A report released yesterday by the Office for National Statistics (ONS) shows the inactivity rate – the percentage of 16 to 64 year olds neither in nor looking for work – falling rapidly since the beginning of 2012. A falling inactivity rate implies more people are looking for work which will add to the amount of slack. The ONS says contributing factors include an increase in the female pension age, which may have delayed retirement, and changes to income support for lone parents.