U.K. unemployment edged closer to the Bank of England’s key threshold in the third quarter and a narrower measure of joblessness dropped for a 12th month in October amid signs that the recovery is gathering strength.
The jobless rate as measured by International Labour Organisation standards declined to 7.6 percent, the lowest since 2009, from 7.7 percent in the three months through August, the Office for National Statistics said in London today. That matched the median of 30 estimates in a Bloomberg News survey. Claims for unemployment benefit fell 41,700 last month, more than the 30,000-drop predicted.
The Bank of England raised its growth forecasts today and said officials now estimate unemployment has a better-than-evens chance of reaching the 7 percent threshold for considering an interest-rate increase in the third quarter of 2015, almost a year earlier than previously seen. The pound and gilt yields rose as traders increased bets on rates rising in less than two years.
“Unemployment is currently coming down pretty rapidly in reaction to the economy’s markedly improved performance in recent months,” said Howard Archer, an economist at IHS Global Insight in London. The drop “can only fuel market expectations that it will get down to 7 by early 2015 and that the Bank of England could very well start raising rates then.”
Unemployment in the U.K. compares with 12.2 percent in the 17-nation euro area, 7.3 percent in the U.S. and 4 percent in Japan.
Since the last projections in August, when the BOE said the jobless rate is unlikely to hit 7 percent until the second quarter of 2016, the recovery has strengthened and the economy created more jobs than forecast.
Growth will be 1.6 percent this year and 2.8 percent in 2014, up from predictions of 1.4 percent and 2.5 percent made in August, the BOE said in its quarterly Inflation Report. Its unemployment projections are based on market interest-rate expectations. Separate estimates based on the benchmark rate staying at 0.5 percent show a 50-50 chance of the jobless rate falling to 7 percent by the fourth quarter of 2014. In August, it put the date at the second quarter of 2016.
Governor Mark Carney tried to temper the more optimistic outlook by saying 7 percent is a “staging post” and not an automatic rate-increase trigger. “With the recovery taking hold, our task is now to secure it,” he told a press conference in London.
Sterling advanced against the dollar and was trading at $1.5978 as of 12:40 p.m in London, up 0.5 percent on the day. The benchmark 10-year government bond rose two basis points to 2.82 percent. The implied rate on short sterling contracts expiring in September 2015 was little changed at 1.2 percent. The rate has doubled from about 0.6 percent in early April.
Markit said today that 72 percent of households predict the BOE will raise its key rate within two years, citing a survey. That’s up from 69 percent in October. Forty seven percent expect an increase in the next year.
Payrolls rose 177,000, the biggest increase for more than a year, to a record 30 million in the third quarter. The number of people looking for work fell by 48,000 to 2.47 million. Youth and long-term unemployment both declined.
Figures produced on an experimental basis show the jobless rate falling to 7.1 percent in September from 8 percent in August. The ONS says the single-month data are volatile and should be treated with caution because they are based on a more restricted sample than the quarterly figures.
The drop in jobless claims to 1.31 million last month took the claimant-count rate to 3.9 percent, both the lowest since 2009. In September, claims fell 44,700, the biggest drop since 1997, instead of the 41,700 initially estimated.
Pay growth slowed to 0.7 percent in the third quarter from 0.8 percent, but with inflation cooling to a 13-month low of 2.2 percent in October, the pressure on household incomes may be easing. Excluding bonuses, pay growth was unchanged at 0.8 percent, matching the lowest on record.
Falling unemployment is good news for Prime Minister David Cameron, who has presided over an unprecedented squeeze on living standards since taking office in 2010. His Conservative Party is trailing behind the Labour opposition in opinion polls with 18 months to go before the next election.
The debate over unemployment centers on the productivity of the British economy. The central bank underscored its view that companies will boost the output of existing workers before they hire new ones.