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
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.
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
[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
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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