Mervyn King's testimony to the House of Lords

Mervyn King said something very interesting at his testimony to the Lords Economics Committee on Tuesday. According to this report from the Independent,

Mervyn King said that the lack of accurate statistics on the size and make-up of the workforce was hindering the bank's ability to set interest rates.

.......Mr King said: "We just don't know how big the population of the UK is because the composition of the population - between young and old, immigrants versus ordinary residents - has changed in recent years.

"It may be that the statistics are not giving an accurate reading." He said rules on benefits for migrants might mean that the claimant count might be understating the level of unemployment. On the other hand, the official measure, based on the labour force survey, might be overstating joblessness.

Of course we all knew that the claimant count didn't contain many migrants because of the rule that they have to pay N.I. for two years before they can claim. But it's very interesting that King thinks the the labour force survey is overstating unemployment.

If unemployment is overstated, then the labour market is tighter than everyone thought and the Bank may wish to put up interest rates. If the figure is correct though and the Bank puts up rates thinking it is wrong, it could send the economy heading downwards. I expect they'll have a very lively debate on this when the Monetary Policy Committee meets next week to decide whether to put interest rates up.