Britain's jobless rate plunges

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File photo: Simphiwe Mbokazi.

London - Britain's unemployment rate plunged to its lowest level in four-and-a-half years in October, approaching the Bank of England's threshold for considering a hike in interest rates at a far greater speed than expected.

The jobless rate fell to 7.4 percent in the three months to October, down from 7.6 percent a month earlier, the Office for National Statistics said.

That was faster than even the most optimistic forecasts from economists polled by Reuters.

Giving what is known as forward guidance, the Bank of England has said that assuming no inflation surprises it will not consider interest raising rates until the unemployment rate falls to at least 7 percent.

Bank Governor Mark Carney declined to comment on the latest figures when questioned about them at a news conference on the introduction plastic banknotes.

Sterling jumped against the US dollar and euro even as the BoE warned in minutes from its last meeting that the UK's surprisingly strong economic recovery could be jeopardised if the currency strengthens further.

The jobs data and the Bank's concern about the currency took analysts by surprise.

The number of people in work jumped by 250,000, the biggest increase since May-July 2010, and a 99,000 fall in unemployment was the biggest drop since June-August 2000.

“They're very, very strong - the underlying trend looks robust,” said Ross Walker, senior economist at RBS, speaking about the jobs data.

As the recovery has picked up speed, Carney has stressed that unemployment hitting 7 percent would not be an automatic trigger for a rate hike from record low levels, and that the recovery needs to deepen before stimulus can be rolled back.

On Wednesday, minutes from the Bank's last rate-setting meeting showed policymakers felt that the 2 percent appreciation in sterling over the previous month reflected a stronger economic outlook.

But a stronger pound could jeopardise British exports, the minutes of the Dec 4-5 meeting showed.

“Any further substantial appreciation of sterling would pose additional risks to the balance of demand growth and to the recovery,” the Monetary Policy Committee said.

Sterling is near a five-year high against other currencies, and the central bank said that for Britain's “burgeoning” economic recovery to be sustainable, it needs to rely more on business investment and exports and less on consumer demand.

The pound rose after the jobs data and the BoE's minutes to a session high of $1.6365, up 0.5 percent up on the day. British government bond prices erased gains.

“It's quite interesting (the minutes) mentioned the currency, they've tended to shy away from that. It looks like they're trying to further balance their message as the economy improves,” said Walker from RBS.

BETTER INFLATION OUTLOOK

The nine-member MPC was unanimous in voting to keep interest rates on hold at 0.5 percent and to leave the central bank's 375 billion-pound stock of bond purchases untouched.

The policymakers said the stronger pound, and new government measures to limit household energy bill rises, had improved the inflation outlook.

Inflation could hit its 2 percent target for the first time in over four years early in 2014, the minutes said, as smaller rises in utility bills could reduce inflation by 0.15 percentage points compared to previous forecasts.

Consumer price inflation was 2.2 percent when the MPC met, and has since fallen to 2.1 percent.

The MPC said the outlook for inflation, inflation expectations and financial stability gave no grounds for it to move away from its guidance, first given in August, that it was committed to keep interest rates on hold until unemployment falls to 7 percent.

The BoE forecast at the time that could take three years but last month, after Britain's recovery picked up more speed, it revised that forecast to show unemployment at 7 percent as soon as this time next year, if interest rates stay unchanged.

Another scenario, based on the market's bets on future interest rate rises, points to the threshold being hit in late 2015.

Despite the fall in unemployment announced on Wednesday, many people in work are not seeing an improvement in living standards which has become a hot political issue ahead of the next elections due in 2015.

Average weekly earnings growth including bonuses picked up by 0.9 percent in the three months to October compared with a year earlier, a minimal improvement on the three months to September.

Excluding bonuses, pay grew 0.8 percent. - Reuters


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