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U.K. Unemployment Stays at 7.2% as BOE Sees Further Pound Risks

A Job Centre Stands in Leeds
A visitor exits a job centre in Leeds. Photographer: Nigel Roddis/Bloomberg

Britain’s unemployment rate held steady in the three months through January as Bank of England policy makers said the pound’s advance is keeping price pressures in check.

The jobless rate measured by International Labour Organization methods was 7.2 percent, the same as in the final quarter of 2013, the Office for National Statistics said in London today. Jobless claims, a narrower measure of unemployment, fell 34,600, and wage growth accelerated.

The data was published as the BOE released the minutes of its March Monetary Policy Committee meeting, showing officials voted unanimously to keep the benchmark rate at a record-low 0.5 percent. The MPC said the pound’s advance had led to a tightening of financial conditions and the currency may appreciate further as the economy strengthens.

“Sterling had appreciated by another 1.5 percent during the month, and it was possible that this gradual appreciation would continue if prospects in the U.K. continued to be seen as increasingly favorable relative to those of it’s main trading partners,” the BOE said.

Britain’s currency reached $1.6823 on Feb. 17, the highest level since November 2009. It rose 0.2 percent today to $1.6621 as of 10:25 a.m. London time.

Rate Expectations

The BOE is “keen to keep rate-hike expectations pushed back with an emphasis on sterling strength,” said James Knightley, an economist at ING Bank in London. “Nonetheless, with the U.K. growth and employment story looking very healthy we are comfortable with the view that the BOE will end up tightening policy within the next twelve months.”

The MPC is currently operating under its first form of forward guidance and won’t consider increasing its benchmark rate at least until unemployment falls to 7 percent. The pledge has knockouts linked to the inflation outlook and the MPC said today that none of those have been breached.

“All members agreed that the probability of inflation being above 2.5 percent in 18-24 months time remained less than 50 percent,” the MPC said. “If anything the appreciation of sterling on the month made that prospect a little less likely.”

The report came hours before Chancellor of the Exchequer George Osborne announces his annual budget to Parliament. His fiscal watchdog is likely to raise its 2014 growth forecast to 2.7 percent from 2.4 percent, according to a Bloomberg survey.

In the minutes, the BOE said there were signs that U.K. growth was broadening, though there remained “some way to go to ensure that the recovery was both balanced and sustainable.”

Unemployment Rate

The ILO unemployment rate was in line with the median forecast in a Bloomberg survey. Unemployment fell 63,000 to 2.33 million people in the three months through January compared with the August-October period. Monthly estimates based on a restricted sample show the jobless rate fell to 6.9 percent in January, the lowest since February 2009.

The drop in jobless claims last month, the 16th in a row, was more than the 25,000 predicted in a Bloomberg survey, and pushed the claimant-count rate down to 3.5 percent. In January, claims declined 33,900, more than initially estimated.

Total weekly pay growth in the three months through January accelerated to 1.4 percent from 1.2 percent in the fourth quarter. Excluding bonuses, pay growth quickened to 1.3 percent, the fastest since November 2012.

With inflation slowing to 1.9 percent in January, below the BOE’s 2 percent target, the figures represent a further easing of the five-year squeeze on real wages, which has become a key battleground for the May 2015 general election.

The MPC refined its guidance last month and said once the 7 percent threshold is reached, there is scope to continue to maintain loose policy to absorb slack in the economy. Carney reiterated his low-rate message in a speech yesterday, even as he warned about the risks related to prolonged stimulus.

“The recovery in the U.K. labor market appears to be slowing, implying that productivity may finally be starting to pick up,” said Samuel Tombs, an economist at Capital Economics Ltd. “For now, we continue to think that the prospect of a prolonged period of below-target inflation will prompt the MPC to keep interest rates on hold until late 2015.”

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