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UK unemployment rate slips to four-and-a-half year low of 7.4% City issues interest rates warning as unemployment falls to 7.4%
(about 11 hours later)
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. David Cameron seized on news of a sharp fall in unemployment on Wednesday as evidence that the coalition's economic plan is working, while City analysts warned that the rapid improvement in the labour market could trigger an earlier-than-expected rise in interest rates.
The Office for National Statistics (ONS) said on Wednesday 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. Mark Carney, governor of the Bank of England, has pledged to leave borrowing costs on hold at 0.5% at least until the unemployment rate hits a "threshold" of 7%. But since that policy was announced in August, employment has risen much faster than he expected.
Under the Bank's policy of forward guidance, governor Mark Carney promised that borrowing costs would remain on hold at least until unemployment has fallen below 7%. Official figures showed that the unemployment rate fell to a four-and-a-half year low of 7.4% in the three months to October, down from 7.7% between May and July, prompting economists to predict that the Bank's threshold could be hit within months. Threadneedle Street has forecast that the threshold could be reached in 2015.
When the policy was announced in August, the Bank's monetary policy committee expected that to take three years; but its latest prediction is that this could be as soon as 2015. "The jobless rate is falling far faster towards the Bank of England's 7% threshold than policymakers envisaged," 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."
"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." Speaking in the Commons, the prime minister said: "The plan is working, let's stick at it, and get unemployment down even further". He added: "there should not be one ounce of complacency because we have still got work to do to get our country back to work and everyone back in work means greater stability for them, greater ability to plan for their future, greater help for their families."
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 its December meeting, according to minutes also published on Wednesday. Allan Monks, UK economist at JP Morgan, said the news had prompted him to bring forward his forecast for a rate rise to the first quarter of 2015; but warned that, "the risks of an even earlier hike have increased". Carney has sought to stress that the jobs threshold is only a "staging post", and would not trigger an automatic rise in rates. But independent Bank policymaker Martin Weale said last week that "rapidly falling unemployment" would strengthen the case for higher rates.
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 details of the jobs data reinforced the view that the labour market has improved 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.
The minutes suggested that 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. On the claimant count, which measures the number of people receiving out-of-work benefits, unemployment fell to 1.27 million in November, its lowest level since January 2009.
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. John Philpott, director of the Jobs Economist consultancy, 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.
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. Despite the improving conditions in the labour market, there was little evidence that the prolonged squeeze on wages is easing, however. 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.
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. Frances O'Grady, the 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 standards through better pay and jobs."
John Philpott, director of the Jobs Economist consultancy, 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, the 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."Rachel Reeves, the 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."
The relentless fall in real wages may help to explain why consumer confidence has actually fallen over the past month, for the first time in a year, according to a new survey published on Thursday. Pollsters YouGov and City consultancy the Centre for Economic Business and Research say their consumer confidence index has slipped to 109.5 in December, from 110 in November. They suggest property prices have been a key driver of the more upbeat mood among consumers in 2013. Stephen Harmston, of YouGov, said: "This month's fall in consumer confidence highlights the fact that the economic recovery is far from being a done deal in the eyes of many people. The surge in house prices in the last year has inflated consumer confidence, masking the underlying economic fragility in people's day to day lives".
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