UK unemployment rate falls to 7.1%
Jobless rate falls to within
whisker of Bank of England's forward guidance threshold for considering
interest rate rise
- British workers facing longer hours
- Larry Elliott: why this will not mean interest rate rise
- Economists warn of risks of interest rate rise
Jobless rate falls to within whisker of Bank of England's forward guidance threshold for considering interest rate rise
The fall in Britain's
unemployment rate piles pressure on Bank of England governor Mark
Carney's forward guidance policy. Photograph: Shannon Stapleton/Reuters
The Bank of England sent a clear message that it has no immediate plans to raise interest rates, despite a shock fall in the unemployment rate close to the level at which the Bank said it would consider a hike.
Policymakers sought to ease fears of a rise after Britain's jobless rate fell sharply to 7.1% in the three months to November from 7.4%. It was a far bigger drop than economists were expecting, with most forecasting a modest fall to 7.3%.
Ian McCafferty, a member of the Bank's rate setting Monetary Policy Committee (MPC), said that although economic recovery was underway and unemployment was falling, inflation was back at the Bank's 2% target, easing the pressure to raise rates.
"It is therefore worth restating that the 7% unemployment level is only a threshold, not a trigger, and that the MPC sees no immediate need to increase interest rates even if 7% were to be hit in the near future," he said in a speech in Nottingham on Wednesday evening.
His comments reiterated those in the minutes of the MPC's January policy meeting, which showed there would be no rush to raise rates. The committee said that when the time did come to raise rates, it would do so "only gradually".
It suggested it would not raise rates until the Bank it had seen a pick up in wages growth and a more established recovery. Economists including those at the EY Item Club are not expecting a hike before mid 2015. Interest rates have been at an all-time low of 0.5% since March 2009.
"By then, we expect the recovery to have broadened out into exports and investment and real wages should be growing again. The consumer needs that time to get its breath back following all the heavy lifting undertaken in recent quarters," said Andrew Goodwin, senior economic adviser to the Item Club.
When the Bank's governor Mark Carney announced the introduction of so-called "forward guidance" on rates last summer, he was not expecting the jobless rate to fall to 7% until 2016. The Bank has since updated its view, but its most recent forecast suggested the rate would not be reached until the second half of 2015. In reality it now looks possible it will fall to that level next month.
Economists said the Bank's next move would most likely be to announce a change to its forward guidance policy when it next updates its forecasts in the February inflation report, possibly by lowering the threshold to 6.5% unemployment and introducing a supplementary wage rise measure.
"Overall we gain the impression that the MPC does not want to raise rates soon and that (perhaps) it will bring its unemployment threshold down, possibly next month," said Philip Shaw, economist at Investec.
The total number of people out of work in Britain fell by 167,000 to 2.32 million in the three months to November according to the Office for National Statistics data.
The number of people claiming jobless benefits in the UK also fell by 24,000 to a near five-year low of 1.25 million in December.
The employment minister, Esther McVey, said: "It's clear that the government's long-term economic plan to get people off benefits and into work so they can secure their future is proving successful."
Employment meanwhile jumped by 280,000 to 30.15 million – the biggest quarterly rise since records began in 1971 – driven mainly by a rise in people with full-time work.
Commenting on the increase, David Cameron said: "More jobs means more security, peace of mind and opportunity for the British people."
Despite the rise in employment, wage growth was flat at 0.9% between September and November, less than half the current 2% rate of inflation. People in the UK earned £447 a week on average in November, before tax and excluding bonuses. People worked an average 32.2 hour week over the three months, compared with 31.1hours in the previous quarter.
MPC members said the slow pace of wage growth in the UK appeared to reflect weak growth in productivity, the January minutes showed.
Policymakers sought to ease fears of a rise after Britain's jobless rate fell sharply to 7.1% in the three months to November from 7.4%. It was a far bigger drop than economists were expecting, with most forecasting a modest fall to 7.3%.
Ian McCafferty, a member of the Bank's rate setting Monetary Policy Committee (MPC), said that although economic recovery was underway and unemployment was falling, inflation was back at the Bank's 2% target, easing the pressure to raise rates.
"It is therefore worth restating that the 7% unemployment level is only a threshold, not a trigger, and that the MPC sees no immediate need to increase interest rates even if 7% were to be hit in the near future," he said in a speech in Nottingham on Wednesday evening.
His comments reiterated those in the minutes of the MPC's January policy meeting, which showed there would be no rush to raise rates. The committee said that when the time did come to raise rates, it would do so "only gradually".
It suggested it would not raise rates until the Bank it had seen a pick up in wages growth and a more established recovery. Economists including those at the EY Item Club are not expecting a hike before mid 2015. Interest rates have been at an all-time low of 0.5% since March 2009.
"By then, we expect the recovery to have broadened out into exports and investment and real wages should be growing again. The consumer needs that time to get its breath back following all the heavy lifting undertaken in recent quarters," said Andrew Goodwin, senior economic adviser to the Item Club.
When the Bank's governor Mark Carney announced the introduction of so-called "forward guidance" on rates last summer, he was not expecting the jobless rate to fall to 7% until 2016. The Bank has since updated its view, but its most recent forecast suggested the rate would not be reached until the second half of 2015. In reality it now looks possible it will fall to that level next month.
Economists said the Bank's next move would most likely be to announce a change to its forward guidance policy when it next updates its forecasts in the February inflation report, possibly by lowering the threshold to 6.5% unemployment and introducing a supplementary wage rise measure.
"Overall we gain the impression that the MPC does not want to raise rates soon and that (perhaps) it will bring its unemployment threshold down, possibly next month," said Philip Shaw, economist at Investec.
The total number of people out of work in Britain fell by 167,000 to 2.32 million in the three months to November according to the Office for National Statistics data.
The number of people claiming jobless benefits in the UK also fell by 24,000 to a near five-year low of 1.25 million in December.
The employment minister, Esther McVey, said: "It's clear that the government's long-term economic plan to get people off benefits and into work so they can secure their future is proving successful."
Employment meanwhile jumped by 280,000 to 30.15 million – the biggest quarterly rise since records began in 1971 – driven mainly by a rise in people with full-time work.
Commenting on the increase, David Cameron said: "More jobs means more security, peace of mind and opportunity for the British people."
Despite the rise in employment, wage growth was flat at 0.9% between September and November, less than half the current 2% rate of inflation. People in the UK earned £447 a week on average in November, before tax and excluding bonuses. People worked an average 32.2 hour week over the three months, compared with 31.1hours in the previous quarter.
MPC members said the slow pace of wage growth in the UK appeared to reflect weak growth in productivity, the January minutes showed.
- COPY http://www.theguardian.com
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