Data today showed the jobless rate fell more than economists forecast to 7.1 percent in the three months through November. That’s close to the level that BOE Governor Mark Carney has set as the point for the Monetary Policy Committee to consider increasing borrowing costs from a record low.
The MPC “saw no immediate need to raise bank rate even if the 7 percent unemployment threshold were to be reached in the near future,” it said in the minutes of its Jan. 8-9 meeting, published today. Cost pressures were “subdued” and headwinds to growth “would persist for some time,” it said.
As the U.K. recovery strengthens and unemployment declines, Carney is pushing back against investor expectations that he will have to increase interest rates sooner than he has forecast. In a further defense of his plan to keep policy loose, the MPC said in the minutes that when the time comes to tighten policy, “it would be appropriate to do so only gradually.”
The panel also said monetary conditions had “tightened further following evidence of a strengthening recovery.” The pound has appreciated more than 5 percent in the past three months, making it the best performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes.
The labor-market data showed that the unemployment rate declined from 7.4 percent in the quarter through October. The median forecast of 33 economists was for a decline to 7.3 percent. In December, jobless claims fell 24,000, less than economists had forecast.
The BOE also published a report on the economy compiled from its regional agents, in which it said there were “widespread reports of growth in employment, albeit often incremental.”
The pound appreciated to a one-year high versus the euro after the data. Sterling strengthened 0.5 percent to 81.90 pence per euro, the most since January 2013. It climbed 0.3 percent to $1.6532.
“It was now likely that the unemployment rate would reach the 7 percent threshold materially earlier than previously expected,” the BOE said. It added that labor-market slack “might not have been eroded as much as the fall in the headline unemployment rate appeared to imply.”
On the economy, the MPC said the domestic recovery “appeared to have taken hold” and surveys pointed to above-trend growth around the turn of the year. There were upside risks to its forecasts for expansion of just below 1 percent in the fourth quarter of 2013 and the current quarter, it said.
The BOE will publish new projections in its quarterly Inflation Report on Feb. 12. It said that a “key unresolved question was whether there would be a cyclical improvement in productivity as the economy expanded further.”
The MPC added today that while risks to the global outlook “appeared more balanced,” it would be hard for net trade to add to growth as long as activity in the U.K.’s main trading partners “remained subdued.” Policy makers said that inflation expectations remain “well-anchored.”
The minutes also showed that the MPC voted unanimously to keep its key rate unchanged at 0.5 percent this month and its asset-purchase program on hold. The benchmark rate has been at that level since March 2009.
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