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News : UK Economy Last Updated: May 16, 2013 - 6:29 AM


Bank of England upgrades economic forecast; Jobless rises 15,000 in Q1 2013
By Finfacts Team
May 15, 2013 - 3:16 PM

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The Bank of England has upgraded its economic growth forecast and said that inflation should fall faster than previously predicted. In his last inflation report as the Bank's governor, Sir Mervyn King said inflation should drop to its target of 2% within two years. Separate figures today showed UK unemployment rose by 15,000 in the first three months of the year to 2.52m but the number of people claiming Jobseeker's Allowance fell by 7,300 last month to 1.52m, the figures from the Office for National Statistics (ONS) showed.

In February, the Bank of England said inflation would fall to 2.3% in the same period.

The CBI, the UK's biggest business lobby group, today commented on the latest official labour market data, showing that unemployment rose by 15,000 and employment fell by 43,000 in the three months to March.

Neil Carberry, CBI director for Employment & Skills, said: "Given the challenging economic conditions at the end of last year, it's unsurprising that we're now seeing fewer people in work.

“What's encouraging, however, is that economic conditions seem to be improving and that full time jobs are still being created. With these figures showing the highest number of vacancies since 2008, this reflects businesses’ more positive view of the year ahead."

Sir Mervyn said at a press briefing at the Bank of England: "Today's projections are for growth to be a little stronger and inflation a little weaker than we expected three months ago.

"That's the first time I've been able to say that since before the financial crisis.

Sir Mervyn said the Bank now expects GDP growth of 0.5% during the current quarter after growth of 0.3% in the first quarter. "This hasn't been a typical recession and it won't be a typical recovery. Nevertheless, a recovery is in sight."

Inflation has been above the 2% target since December 2009, and currently stands at 2.8%

The governor said it was not the moment to look back at his own record after a decade as head of the central bank. “After 89 press conferences, including 82 under the banner of the Inflation Report, I have had my say. Now it is over to the next generation to have theirs,” he said.

The government hopes Sir Mervyn’s replacement, Mark Carney, Bank of Canada governor , will trigger "monetary activism” when he takes over in July to help the UK economy achieve “escape velocity”.

Sir Mervyn criticised Europe’s proposed financial transactions tax. The FTT will be levied at 0.1% on most trades, raising a forecast €30bn to €35bn a year.

“I don’t think (the financial transaction tax) is likely to help very much and indeed the thing I find most striking is that here in Europe, I can’t find anyone in the central banking community who thinks it’s a good idea,” he said

Employment/Pay

The Office of National Statistics said [pdf] today that in the January-March period, the unemployment rate was 7.8% of the economically active population, up 0.1 percentage points from October to December 2012 but down 0.4 from a year earlier. There were 2.52m unemployed people, up 15,000 from October to December 2012 but down 92,000 from a year earlier.

The inactivity rate for those aged from 16 to 64 was 22.4%, up 0.1 percentage points from October to December 2012 but down 0.6 from a year earlier. There were 9.00m economically inactive people aged from 16 to 64, up 47,000 from October to December 2012 but down 212,000 from a year earlier.

Total pay rose by 0.4% compared with January to March 2012; the growth rate has not been lower since March to May 2009. Regular pay rose by 0.8% over the same period, the lowest growth rate since comparable records began in 2001.

The number of people employed in the public sector was 5.72m in December 2012, down 20,000 from September 2012. The number of people employed in the private sector in December 2012 was 24.01m, up 151,000 from September 2012.

Howard Archer, an economist at IHS Global Insight, said lower earnings were a "serious concern" for growth prospects as consumer spending is held back.

"Earnings growth remains extremely weak, which is hitting consumers’ purchasing power appreciably especially as consumer price inflation has moved back up to 2.8%," he said.

"Even if employment in the private sector rises moderately over the coming months, it will likely not be enough to both offset job cuts in the public sector and combat the increasing labour force."

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