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Unemployment falls to 7.1pc

Robyn Hall

January 22, 2014

The most recent figure brings unemployment considerably closer to the 7% unemployment threshold that Bank of England governor Mark Carney indicated could be a trigger rate to raise interest rates.

However, fears of an earlier than expected hike in the base rate were allayed last week when the latest inflation figures showed consumer price inflation had fallen back to its target of 2%.

Earlier this month Carney admitted that the Bank may delay raising the base rate from 0.5% even if unemployment fell to 7% before mid-2015 – when the Bank had originally projected it would.

Furthermore, the minutes of January’s Monetary Policy Committee meeting explicitly noted that there was no “immediate need” to raise Bank Rate even if this threshold is met in the near future.

Samuel Tombs, UK economist at Capital Economics, said: “Today’s figures show that conditions are continuing to improve rapidly in the labour market.

“But it was also suggested that the improvement in the labour market figures may overstate the degree to which conditions have tightened. As a result, we think that there is a strong chance that the Committee will alter its forward guidance alongside next month’s Inflation Report in order to provide the recovery with more support.”

Damian Riley, director of mortgage administration company HML, warned his firm’s research suggested that a 1.25% rise in the base rate over a year could push 30,000 extra mortgage accounts into arrears.

Riley added: “Inflation may have fallen to the Bank’s 2% target, but wage growth still stands at less than 1%. Household finances are still going backwards, albeit at a slower pace. It is still imperative that mortgage customers who are concerned about repayment affordability should engage with their lender at the first opportunity.”


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