UK unemployment coming down faster than expected: Bank of England

Wed Oct 23, 2013 6:37am EDT
 
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By David Milliken and William Schomberg

LONDON (Reuters) - British unemployment appears to be falling slightly faster than forecast against a backdrop of a robust recovery which is proving stronger than expected, Bank of England policymakers concluded at their October rate-setting meeting.

The BoE committed in August to keep interest rates on hold until unemployment hits 7 percent - something it forecast would take three years - unless inflation threatens to get out of control or there are major risks to financial stability.

But since then growth has been strong and the unemployment has dropped to 7.7 percent from 7.8 percent, prompting analysts to predict the BoE would amend its forecasts and eventually raise rates earlier.

"The fall in unemployment in the three months to July appeared to reflect growth in full-time permanent jobs," minutes of the Monetary Policy Committee's October 8-9 discussion showed.

"It now therefore seemed probable that unemployment would be lower, and output growth faster, in the second half of 2013 than expected at the time of the August Inflation Report."

Even at the time of the August forecasts, most private-sector economists were already expecting unemployment to fall much faster than the BoE predicted, and for interest rates to rise sooner than the late 2016 date implied by the central bank.

Peter Dixon, an economist at Commerzbank, said the bank's recognition that slack in the economy was being run down more quickly than it thought in August suggested the BoE might bring forward its estimate for when unemployment falls to 7 percent.

"Whether it will be in November is perhaps premature to say, but over the course of the next few months I will certainly be looking for indications that they might need to bring it forward."   Continued...

 
Flowers bloom outside the Bank of England in the City of London September 19, 2013. REUTERS/Suzanne Plunkett