Rising UK unemployment eases rate hike pressures

19th February 2014, Comments 0 comments

Britain's unemployment rate rose in the quarter to December, official data showed on Wednesday, easing pressure on the Bank of England to raise borrowing costs.

The jobless rate climbed to 7.2 percent, up from a near five-year low level of 7.1 percent in the quarter to November, the Office for National Statistics (ONS) said in a statement.

The Bank of England (BoE) has faced pressure from financial markets to begin raising its main interest rate from a record low-level of 0.50 percent as Britain's economic recovery picks up speed.

Sterling slid against the dollar on Wednesday following the latest data, falling away from recent three-year highs triggered by expectations of future rate hikes.

Canadian national Mark Carney took charge of the BoE last August and launched a forward guidance policy, under which he said the central bank would not raise borrowing costs until the unemployment rate falls to at least 7.0 percent.

Carney has since tweaked the guidance with official data showing unemployment falling much faster than expected up until Wednesday's data.

Under the amended guidance set out last week, the BoE will seek to absorb all the spare capacity in the economy as it looks to keep inflation close to a government-set target of 2.0 percent, before moving to hike its key lending rate.

In a separate release on Wednesday, the BoE revealed that policymakers voted unanimously to maintain its record-low rate as well as its stimulus amount earlier this month.

The bank's monetary policy committee (MPC) decided that there was still too much spare capacity in the economy, according to minutes from its February 5-6 meeting.

"Despite the (recent) sharp fall in unemployment, the committee judged that there remained scope to absorb spare capacity further before raising bank rate," read the minutes.

"When bank rate did begin to rise, it expected that the appropriate path, so as to eliminate slack over the next two or three years and keep inflation close to target, would be gradual."

Economists said that the BoE would be in no rush to raise rates following the latest newsflow.

- 'Plenty of spare capacity' -

"Since the minutes of February's MPC meeting confirmed that the committee is committed to eliminating most of the slack in the economy before tightening policy, the first rise in interest rates still appears to be some way off," said Samuel Tombs, economist at consultancy Capital Economics.

The ONS added on Wednesday that the number of unemployed fell 125,000 to 2.34 million between October and December.

Average earnings growth rose to 1.0 percent in the three months to December. That was the highest level since last June and compared with 0.9 percent in November.

And the number of people claiming jobseeker's allowance slid 27,600 to 1.22 million people in January, falling for the 15th successive month to hit the lowest total since December 2008.

The data and minutes were published one day after news that inflation had fallen below target last month to strike the lowest level for more than four years.

Official data showed that 12-month inflation dipped to 1.9 percent in January, from 2.0 percent in December.

© 2014 AFP

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