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UK unemployment rate slips to four-and-a-half year low of 7.4% | Business | theguardian.com

UK unemployment rate slips to four-and-a-half year low of 7.4% | Business | theguardian.com.

Bank of England governor Mark Carney

Under Bank of England governor Mark Carney’s policy of forward guidance, the MPC will not to consider raising rates until unemployment has fallen below 7%. Photograph: Shannon Stapleton/Reuters

Britain’s unemployment rate has slipped to a four-and-a-half year low of 7.4%, edging closer to the “threshold” at which the Bank of England has said it will consider raising interest rates.

The Office for National Statistics (ONS) said that unemployment in the three months to October was 2.39 million, or 7.4% of the working age population, down from 7.6% in the three months to September.

Under the Bank’s policy of forward guidance, governor Mark Carneypromised that borrowing costs would remain on hold at least until unemployment has fallen below 7%.

When the policy was announced in August, the Bank’s monetary policy committee expected that to take three years; but their latest prediction is that it could be as soon as 2015.

“The jobless rate is falling far faster towards the Bank of England’s 7% threshold than policymakers envisaged when establishing the marker back in the summer,” said Chris Williamson, chief economist at City data-provider Markit. “Employment is surging higher and unemployment collapsing in the UK as the economic recovery has moved into a higher gear.”

Sterling jumped after the unemployment data was released, rising by almost a cent against the dollar, to $1.635, as investors bet on an earlier-than-expected rate rise. A stronger pound was one of the concerns of the Bank’s nine-member monetary policy committee at their December meeting, according to minutes also published on Wednesday.

The MPC pointed out that the value of sterling has risen by 9% against the currencies of the UK’s major trading partners since March, and warned that “any further substantial appreciation of sterling would pose additional risks to the balance of demand growth and to the recovery”.

The minutes suggested the latest evidence pointed to a “burgeoning recovery” in the UK; but one which was unlikely to prove sustainable unless productivity picked up, finally lifting real incomes. The MPC voted unanimously to leave rates on hold at their record low of 0.5%, and the stock of assets bought under quantitative easing unchanged at £375bn.

MPC member Martin Weale suggested last week that if unemployment is falling rapidly at the point when the 7% threshold is breached, he would regard that as a reason to tighten policy.

The details of the jobs data reinforced the view that the labour market has strengthened markedly over the past six months. The number of people employed across the economy has hit a fresh record high above 30 million, while there are more vacancies than at any time since the summer of 2008, before the UK slipped into recession.

On the claimant count, which measures the number of people in receipt of out-of-work benefits, unemployment fell to 1.27 million in November, its lowest level since January 2009.

John Philpott, director of consultancy the Jobs Economist, described the data as “wonderful”. “The quarterly 250,000 net increase in total employment is as big as one might once have expected in a full year. Employment is up in all parts of the UK, except Northern Ireland, with a sharp rise in job vacancies helping an additional 50,000 16 to 24-year-olds into work. And while the overall figure of more than 30 million people in work still leaves the UK employment rate (72%) below the pre-recession rate (73%) it is a landmark worth celebrating,” he said.

Despite the improving conditions in the labour market, there is little evidence that the prolonged squeeze on wages is easing. The ONS said total pay rose at an annual rate of 0.9% in October, or 0.8% including bonuses. That compares with an inflation rate of 2.2% in the same month, suggesting that on average, living standards are continuing to fall. Frances O’Grady, general secretary of the TUC, said: “These are undoubtedly positive figures, but we should not forget how far we still have to go to restore pre-crash living standrards through better pay and jobs”.

Rachel Reeves, Labour’s shadow work and pensions secretary, said: “Today’s fall in unemployment is welcome, but families are facing a cost-of-living crisis and on average working people are now £1,600 a year worse off under this out-of-touch government.”


Interest rates may rise next year, says Bank of England chief economist | Business | The Guardian

Interest rates may rise next year, says Bank of England chief economist | Business | The Guardian. (source)

Aim to keep borrowing costs low could be thwarted by stronger than expected growth and unusually weak productivity

Bank of England has warned it may be necessary to raise interest rates by 2014

A top Bank of England official has warned it may be necessary to raise interest rates as early as 2014 Photograph: Yui Mok/PA

The Bank of England warned that interest rates might rise as early as next year as its chief economist said Threadneedle Street’s desire to keep borrowing costs low for several years could be thwarted by a combination of stronger than expected growth and unusually weak productivity.

Spencer Dale, one of the nine members of the rate-setting monetary policy committee, said the UK was currently growing at an annual rate of 3-4% and the Bank could not be certain when it might need to tighten policy.

Following guidance issued by the Bank in August, the City is expecting interest rates to remain on hold at their record low of 0.5% until at least 2015. But Dale said in a Guardian interview that in certain circumstances an increase could happen as soon as 2014.

“What we are clear about is what the state of the economy will be like when we raise interest rates. What we are not as clear about is whether that is two years ahead, three years ahead, or one year ahead. But it is clear that we are thinking of years not months,” Dale said.

The Bank said in August that unless there was a risk from inflation or an over-heating property market it would only start thinking about raising interest when unemployment had come down to 7% from 7.7% currently, something it did not expect until 2016. But the recovery in the economy seen since the spring has left many in the City convinced that the Bank will be forced to take action before then.

Dale said that “forward guidance” had been useful in explaining how the Bank was likely to behave, and that he was “nervous that some people may be thinking we are going to raise rates just because we are going to have strong growth”.

“By doing that [forward guidance], we reduce the likelihood that people, when they see a few quarters of strong growth, expect us to raise rates. We have reduced the likelihood of a premature raising of rates.”

But Dale said he could not say for sure how long the period of 0.5% interest rates would last. “The economy looks as if it is growing at something like 3-4% annualised. Bank rate is at 0.5%, something that would have been unthinkable a few years ago. The big message is that monetary policy is going to remain loose for a considerable period of time. I can’t be sure whether that means it will be tightened in 2015 or 2016. It could be 2015. It could be a bit earlier than that or a bit later.”

Asked whether the Bank could raise rates as early as next year, Dale replied: “Conceivably it could be 2014. But it would have to be in a world where you had quite strong growth, perhaps stronger than you have got now, and a recovery in productivity weaker than I would expect.”

Dale said the biggest downside risk to the economy was a renewed crisis in the euro area. “We have seen some of the near term tensions ease, but the fundamental challenges are immense.”

But he added that there was also a chance that the economy would grow far more strongly than currently expected.

“If you take business surveys at face value and base your view of the economy purely on them it would suggest that the economy is growing in at a rate in excess of 4%. We might be misjudging it. It could be that the economy is coming back more quickly than we think.

“I am aiming off of that slightly. I am aware of the fundamental challenges facing our economy. In particular, real incomes remain weak and we are not going to see a strong pick up in consumption until we see that.”

Dale said that the economy was still 3% smaller than at its peak before the deep recession of 2008-09 and that the Bank was alive to the risk that a premature increase in borrowing costs could choke off recovery. He added that if markets failed to get the message and pushed up long-term interest rates to a level that impinged on the recovery, the Bank’s monetary policy committee would act. “The natural thing would be to do more quantitative easing and loosen policy to stimulate the economy.”

Dale said he welcomed the fact that the housing market was recovering, and saw no immediate threat of a bubble. It was “great” for the construction sector that more houses were being built, and the increase in mortgage approvals boosted demand for professional services and led to greater labour mobility. “It is good for consumption, because there is quite strong evidence that when people move home they go out and change the carpets and buy new furniture. We are moving from a housing market in deep freeze to where it is thawing and helping the recovery.”

Dale said that one difference from previous cycles was that there was now a financial policy committee at the Bank of England armed with the tools to tackle any problems from the housing market.

He said “bitter experience” had shown what could happen when the housing market was allowed to overheat. “I don’t think that’s where we are now but are very active to that risk. The Bank as a whole is. The monetary policy committee is. Most importantly, the financial policy committee is.”

Asked if the Bank was being complacent, he replied: “We are not being complacent. We are looking at this very closely.”


Zero-hours contracts cover more than 1m UK workers | UK news | The Guardian

Zero-hours contracts cover more than 1m UK workers | UK news | The Guardian.


Using QE to rebuild the UK economy – the Canadian way | new economics foundation

Using QE to rebuild the UK economy – the Canadian way | new economics foundation.


Energising Money | new economics foundation

Energising Money | new economics foundation.


Recessions compared: how does Britain’s GDP compare to every recession since 1930? | Business | guardian.co.uk

Recessions compared: how does Britain’s GDP compare to every recession since 1930? | Business | guardian.co.uk.

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