Britain’s unemployment rate has fallen to the lowest level in five years, putting Bank of England Governor Mark Carney in a tricky position as the jobless rate moves to within a fraction of a threshold he set to consider raising interest rates.
Britain’s economy has performed far better than expected in recent months and figures released Wednesday showed the unemployment rate had fallen to 7.1 per cent for the three months from September to November, 2013. That was lower than most economists expected and down 0.5 percentage points from the previous three month period. It was also down 0.6 points from the same period a year earlier. On Monday the International Monetary Fund also revised its 2014 growth forecast for Britain’s economy to 2.4 per cent from 1.9 per cent.
Several economists have said the unemployment rate could fall to 7 per cent by March, matching a target Mr. Carney set to consider raising rates.
Mr. Carney set the target last summer, saying that the bank would consider increasing its key lending rate, currently at 0.5 per cent, once unemployment hit 7 per cent. That wasn’t expected to happen until mid-2016. Some economists have suggested Mr. Carney may have to reset the threshold and drop it to 6.5 per cent since a hike in rates now could thwart the recovery.
There is no indication yet that the bank plans any change. Minutes released Wednesday from this month’s meeting of the bank’s nine-member Monetary Policy Committee, which sets the bank rate, made it clear the committee plans to stick with the policy and won’t likely change rates even if the threshold is met sooner than expected.
All MPC members acknowledged that “it was now likely that the unemployment rate would reach the 7 per cent threshold materially earlier than previously expected,” according to minutes from the meeting on Jan. 8 and 9. However, all members also said there was still slack in the labour market and the pace of the economic recovery remained uncertain.
As a result, the committee said there was “no immediate need to raise the bank rate even if the 7 per cent unemployment threshold were to be reached in the near future.” And the minutes added: When the time did come to raise rates, “it would be appropriate to do so only gradually.”