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News : UK Economy Last Updated: Nov 13, 2013 - 4:15 PM

Bank of England may raise rates earlier than expected; Jobless rate dips to 7.6%
By Finfacts Team
Nov 13, 2013 - 4:13 PM

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The Bank of England Wednesday said the UK's economy is set to grow faster than it had expected in August, but stressed that a subdued outlook for inflation means it is still unlikely to raise interest rates soon. Releasing its latest quarterly forecasts, the BOE said the unemployment rate may fall to 7% much earlier than it had previously thought, an indication that it could consider raising its benchmark interest rate earlier than anticipated.  Also on Wednesday, the UK unemployment rate was reported at 7.6%, down from 7.8%.

In its quarterly forecast, published on Wednesday, the Monetary Policy Committee said there was a 50/50 chance unemployment would fall to 7% in the fourth quarter of 2014. In August the policy committee said that the figure was likely to remain above this threshold until summer 2016.

Mark Carney, BoE governor, stressed that rates could remain on hold at 0.5%, even after unemployment dips below the 7% threshold.

The MPC’s forecasts also signalled that inflation would fall below the central bank’s 2% target in the course of its forecast horizon, if policy moved in line with market expectations. Official figures showed last week that inflation had fallen from 2.7% to 2.2% in October.

Reuters reports that the Bank also revised up its growth forecasts for this year and next. It sees 0.9% growth in the last three months of 2013, taking full-year growth up to 1.6% compared to 1.4% forecast in August. For 2014 it expects annual growth of 2.8%, compared to 2.5% predicted in August.

Britain's economic output remains well below pre-crisis levels, however, unlike in most other major economies, and the belief that there is a large amount of unused capacity in Britain is what makes the BoE want to keep rates on hold.

Sterling jumped and British government bond prices dropped to their lowest level in four weeks as investors adjusted to the Bank's new, shorter timeframe for when unemployment might fall to its threshold for considering an interest rate hike.

Inflation Report Nov 2013 [pdf]

The Office for National Statistics said [pdf] today that employment rate for those aged from 16 to 64 for July to September 2013 was 71.8%, up 0.3 percentage points from April to June 2013. There were 29.95m people in employment aged 16 and over, up 177,000 from April to June 2013.

The unemployment rate for July to September 2013 was 7.6% of the economically active population, down 0.2 percentage points from April to June 2013. There were 2.47m unemployed people, down 48,000 from April to June 2013.

The inactivity rate for those aged from 16 to 64 for July to September 2013 was 22.2%, down 0.2 percentage points from April to June 2013. There were 8.92m economically inactive people aged from 16 to 64, down 69,000 from April to June 2013.

Between July to September 2012 and July to September 2013 total pay rose by 0.7% and regular pay rose by 0.8%.

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