Homeowners may be paying too much on their mortgages because of unreliable data from the UK’s main statistics body.
Bank of England Governor Andrew Bailey told MPs that the Bank’s lack of trust in number crunchers at the Office for National Statistics (ONS) ‘does have a bearing’ on its decisions on interest rates, which in turn affect mortgage payments.
The Governor did not spell out the implications – but if doubts about the data are delaying interest rate cuts, then millions of borrowers may be paying the price.
Problems have been plaguing the ONS figures on jobs and wages for the past couple of years.
These include difficulty finding enough people to respond to surveys since the pandemic. Smaller sample sizes increase the risk of inaccurate data.
The state of the labour market is a key element in the Bank’s deliberations on interest rates. Its aim is to keep inflation near a target rate of 2 per cent.
Cautious: Bank of England Governor Andrew Bailey has placed a ‘severe health warning’ on the Office for National Statistics data
A strong jobs market and robust growth in wages are normally seen as a factor that would push up inflation and therefore make it less likely the Bank will cut interest rates – and vice versa.
But given the uncertainty around the ONS’s key Labour Force Survey (LFS), which tracks this information, members of the Bank’s rate-setting Monetary Policy Committee are instead having to make their own judgments by piecing together data from elsewhere.
At a Treasury Select Committee hearing last week, Bailey said efforts by the ONS to improve the reliability of its figures are ‘a work in progress’ and there was a ‘very severe health warning’ on the data. Sarah Breeden, the Bank’s deputy governor, said other data sources, such as figures from
HM Revenue and Customs (HMRC) were being used to help the Bank make its decisions.
However, the HMRC data does not cover self-employed people, a key part of the labour market, which is included in the LFS. Bailey has previously described unreliable labour market figures as a ‘substantial problem’ for the Bank. His latest comments go further, by saying that the issue is directly affecting decisions on interest rates.
Poor data could affect Britain’s 8.4 million mortgage holders, particularly the 1.1 million whose borrowing rates vary as the Bank changes interest rates.
The last rate cut in May – even though it was just a quarter of a percentage point – lopped hundreds of pounds off the average annual mortgage bill.
A typical tracker mortgage saw its annual payments reduced by nearly £350, while the average borrower with a standard variable rate saved £166, according to trade body UK Finance.
The ONS suffered a fresh embarrassment on Thursday when it admitted that the UK’s inflation reading in April of 3.5 per cent had been overstated by 0.1 of a percentage point because of an error in how it calculated data related to vehicle tax.
The statistics body has been shaken by changes at the top after its boss Sir Ian Diamond stepped down last month for health reasons. Some experts have said the problems mean the Bank of England is effectively ‘flying blind’.
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