U.K. Unemployment Stays at 7.8% as Investors Eye New Rate SignalSvenja O’Donnell
Britain’s unemployment rate remained at 7.8 percent in the second quarter amid signs that the labor market is improving as the economy gains momentum.
The jobless rate as measured by International Labour Organisation standards was unchanged from the three months through May, the Office for National Statistics in London said today. That was in line with the median of 30 forecasts in a Bloomberg News survey. Unemployment claims fell twice as much as predicted in July.
Bank of England Governor Mark Carney last week made unemployment a focal point of monetary policy by pledging for the first time to refrain from raising interest rates until joblessness falls to 7 percent. Prime Minister David Cameron is relying on the benchmark rate staying at a record low 0.5 percent to spur private job creation as government jobs are cut to help narrow the budget deficit.
“This is a good number,” said George Buckley, chief U.K. economist at Deutsche Bank AG in London. “We think the risks are towards the unemployment rate falling more quickly than the BOE thinks, and today’s figures highlight that risk.”
Carney failed to unite policy makers on implementing forward guidance as Martin Weale favored a tougher stance on above-target inflation, minutes of their Aug. 1 meeting showed today.
The MPC voted 8-1 to link the outlook for its benchmark interest rate to unemployment, according to details of the meeting, when it decided to implement the new policy. While Weale supported the adoption of guidance, he voted against due to an inflation clause in the policy that he disagreed with.
The pound jumped against the dollar after the reports and was trading at $1.5489 as of 9:33 a.m. London time, up 0.3 percent on the day. The 10-year gilt yield rose 4 basis points to 2.64 percent, the highest for almost two years.
The number of people looking for work fell 4,000 to 2.51 million in the second quarter, today’s figures show.
A narrower measure of unemployment fell for a ninth straight month in July. Jobless claims declined 29,200 to 1.44 million, taking the rate to 4.3 percent, the lowest since February 2009. Economists had forecast a decline of 15,000 based on the median of 29 estimates in a Bloomberg survey. In June, claims fell 29,400, the most since May 2010, instead of the 21,200 initially reported.
The U.K. economy is showing signs of strengthening, with indexes of manufacturing, services and construction all improving in July and house prices rising amid the strongest property market since the financial crisis. Growth strengthened to 0.6 percent in the second quarter.
Seventeen of 25 forecasters in a Bloomberg News survey see unemployment falling to 7 percent by mid-2016, with 13 predicting it will happen in 2015 at the latest. The BOE sees it staying above the threshold until at least the fourth quarter of 2016 after the economy has created at least 750,000 jobs.
The second-quarter jobless rate is unchanged from 7.8 percent in the first quarter and down from a peak of 8.4 percent at the end of 2011.
The number of people in work in the three months through June climbed 69,000 to a record 29.8 million, today’s ONS data show.
The BOE guidance has three conditions that will void it, including two linked to price stability. With inflation at 2.8 percent continuing to outpace earnings, household spending will remain squeezed.
Average earning growth accelerated to 2.1 percent, the most since November 2011, in the three months through June, partly reflecting delayed bonus payments as workers sought to take advantage of a cut on the top rate of income tax that took effect in April. Excluding bonus payments, annual pay growth quickened to 1.1 percent from 1 percent.