Why was the UK unemployment rate in July 2016 lower than forecasted by the Bank of England?


1 Answer 1


I would guess that this Is due to the variance that exists in the tool used to make predictions about unemployment in the economy known as Okun's Law. As stated on wikipedia as:

The gap version of Okun's law may be written (Abel & Bernanke 2005) as:

${{\displaystyle (Y-{\overline {Y}})\over{\overline {Y}}}=c(u-{\overline {u}})}$


  • ${\displaystyle Y}$ is actual output
    • ${\overline {Y}}$ is potential GDP
    • ${\displaystyle u} $ is actual unemployment rate
    • ${\displaystyle {\overline {u}}}$ is the natural rate of unemployment
    • ${\displaystyle c}$ is the factor relating changes in unemployment to changes in output (Econ John: This is also known as the "Okun Coefficient")

From the Usefulness section on wikipedia

Through comparisons between actual data and theoretical forecasting, Okun's law proves to be an invaluable tool in predicting trends between unemployment and real GDP. However, the accuracy of the data theoretically proved through Okun's law compared to real world numbers proves to be generally inaccurate. This is due to the variances in Okun's coefficient. Many conclude that information proved by Okun's law to be acceptable to a certain degree. Also, some findings have concluded that Okun's law tends to have higher rates of accuracy for short-run predictions, rather than long-run predictions. Forecasters have concluded this to be true due to unforeseen market conditions that may affect Okun's coefficient.

As such, Okun's law is generally acceptable by forecasters as a tool for short-run trend analysis between unemployment and real GDP, rather than being used for long run analysis as well as accurate numerical calculations.

Hope this helps.


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