This week’s labour market statistics presented a mixed picture for the economy. While the unemployment rate remains historically low at 4.0 per cent, it is an increase on the previous month. At the same time, the UK’s inactivity rate has not yet recovered from its post-pandemic spike. Those listed as economically inactive include those unable to work due to ill health, as well as students, retirees, and those looking after their family or home. The UK’s inactivity rate is now 20.8 per cent. This is down from its peak in the aftermath of the pandemic, but still sits at 0.6 per cent higher than pre-pandemic levels.

However, an increase in poor health which began in 2019 and which has been exacerbated by the pandemic, has led to a surge in people becoming inactive due to long term illness. The number of people economically inactive due to long term illness has now risen by around 400,000 since the start of the pandemic with just over 2.5 million people out of work for this reason.

The rise in those classed as long term sick has been driven by rises in three main areas. Between 2019 and 2022, the ONS report a 31% rise in those reporting problems connected with back or neck pain, while in the same period there was a rise of 22% in people reporting serious mental illness (this was the largest overall increase in long term sickness amongst 16 to 34 year olds). There was no equivalent rise in those reporting more common mental health problems, while rates of progressive illnesses such as cancer rose by just 1%.

The most significant cause of the increase in long term illnesses in recent years has been what the ONS classes as “other health problems or disabilities”. Those reporting these problems increased by 41% from 2019 to 2022. The ONS suggest that this is likely to include those suffering from post-viral fatigue syndrome, or other illnesses related to long Covid. However, given the limited guidance provided to survey respondents on what to include in this category, it is difficult to say this with any real certainty.

An increase of just 0.6% in the UK’s inactivity rate may sounds small but it actually accounts for around a quarter of a million fewer workers in or seeking work. This comes at a time of increased pressure in labour markets, leading to concern from the Bank of England about wage growth driving further inflation. Meanwhile pre-pandemic levels of unemployment have not lessened the difficulties some companies face in filling roles, with vacancies still around 26% higher than on the eve of the pandemic.

The largest group of economically inactive people however is the long term sick. Some 29.2% of those counted as economically inactive are listed as long term sick, while a further 2.1% are temporarily sick. This group then offers a significant opportunity for those seeking to ease labour market pressures and to fill vacancies, not least to increase economic growth and tax revenues as workers return to the workforce. This opportunity can be, and indeed has been, measured. While a significant majority of those who are long term sick reasonably do not envision a return to the workplace, the ONS estimate that there are 595,000 people classed as long term sick who say they want a job. Just over 100,000 temporarily sick people feel the same way. If around a third of these people could be supported back into work, it would bring the number of vacancies in the UK labour market back down to pre-pandemic levels.

Enabling this number of people to re-enter the workforce is easier said than done. As the ONS’s own data makes clear, the growing number of those economically inactive as a result of long term illness is complex, with both mental and physical health playing a role. Nevertheless, a high standard of overall public health is key to generating sustained, inclusive growth.

Setting aside the obvious human benefit to those who are long term sick and want to return to work,, there are significant economic upsides to getting people back into work. Investment into the health service can help breakdown supply side barriers to growth, providing for a healthier, more productive workforce with lower rates of economic inactivity. In a recent paper, Fair Growth: Opportunities for economic renewal, CPP identified the key local drivers of productivity. These were higher skills, increased gender equality in the labour market and better health.

Lifting the UK out of its current economic malaise requires all parts of our economy to be firing on all cylinders. Addressing vacancy rates and allowing more people to enter or return to the workforce will be key in achieving this. Most of all they demonstrate the importance of investment in people as a determinant of the whole UK’s macroeconomic outcomes. This week's figures paint a mixed picture for the labour market, but set out a clear case for greater, better investment in health.