U.K. Unemployment Unexpectedly Falls to Four-Year LowScott Hamilton and Jennifer Ryan
U.K. unemployment unexpectedly fell in the three months through October to the lowest in 4 1/2 years, lurching toward the 7 percent threshold at which Bank of England officials say they will consider raising interest rates.
The unemployment rate measured by International Labour Organization methods declined to 7.4 percent from 7.6 percent in the quarter through September, the Office for National Statistics said in London today. The median forecast of 32 economists was for the rate to stay unchanged. Separately, Bank of England officials said further pound gains could damp the recovery, minutes of their December policy meeting show.
The pound advanced as the figures raised the prospect that the BOE will increase interest rates earlier than forecast. Expectations a rise might come as early as the end of 2014 have led Governor Mark Carney to stress that reaching the 7 percent threshold wouldn’t automatically trigger tighter policy.
Today’s data “raises the risk of an earlier interest-rate rise,” said Rob Wood, an economist at Berenberg Bank in London and a former BOE official. “It’s quite easy to hit the threshold by the middle of next year at this rate. It’s terrific news -- the U.K. economy is growing more quickly than expected - - but it does matter for the BOE as we’re not far from reaching their threshold.”
The drop in the three-month jobless rate between October and September, which the ONS said amounted to 0.3 percentage point, was the largest since records began in 1971. A 7.4 percent unemployment rate was forecast by none of the economists surveyed by Bloomberg. In November, jobless claims fell by 36,700, more than estimated.
The pound rose after the report and was trading at $1.6357 as of 11:51 a.m. London time, up 0.6 percent from yesterday. The 10-year gilt yield rose 3 basis points to 2.9 percent.
In a separate release, the Monetary Policy Committee said while sterling’s strength may help ease inflation pressures, it could also impede growth in an environment of weak global demand. All nine members voted for no change in the key interest rate or the bond-purchase plan, in line with previous guidance, minutes of the Dec. 4-5 meeting showed.
Unemployment fell 99,000 in the latest quarter, the biggest drop for 13 years, to a four-year low of 2.39 million. Figures based on a restricted sample show the jobless rate declined to 7 percent in October from 7.1 percent in September.
Elsewhere, German business confidence rose to the strongest in 20 months in a signal that the pace of recovery is quickening in Europe’s largest economy. The Ifo institute’s business climate index, based on a survey of 7,000 executives, increased to 109.5 in December from 109.3 in November. That matches the median prediction of 39 estimates in a Bloomberg News survey and is the highest level since April 2012.
The U.S. Federal Reserve will release its policy statement today at 2 p.m. in Washington and Chairman Ben S. Bernanke will hold a news conference a half hour later. Economists are divided over whether the Fed will decide today to reduce its $85 billion monthly pace of bond purchases.
In the U.K., today’s data showed the number of people in work climbed by 250,000 to a record 30.1 million during the quarter through October, the biggest increase since July 2010.
Chief Secretary to the Treasury Danny Alexander hailed employment climbing above 30 million as “another landmark on the long road to recovery.” Deputy Prime Minister Nick Clegg said the figures “send out a clear message that we have built the foundations for healthy U.K. growth.”
The drop in jobless claims last month was the 13th in succession and larger than the 35,000 median forecast in a Bloomberg survey. In October, claims fell 42,800, instead of the 41,700 initially estimated. The claimant-count rate declined to 3.8 percent in November, the lowest since January 2009.
The U.K. economy has grown faster than any other Group of Seven nation this year, cutting the jobless rate from 7.8 percent since Carney became governor on July 1. Of 29 economists surveyed by Bloomberg, 20 see the 7 percent threshold being reached by the second quarter of 2015. Half of those 20 forecast the threshold will be reached by the end of next year.
The debate over how fast unemployment will fall centers on productivity. The BOE’s view is that companies will meet recovering demand from existing workers before they begin to hire, meaning unemployment will fall only gradually.
Testifying to U.K. lawmakers yesterday, Carney stressed that unemployment is still almost 1 million higher than before the financial crisis and economic output has yet to return to its pre-recession level.
“My view is that we need to provide exceptional monetary stimulus for some time, and that would include some time after the 7 percent unemployment threshold is reached,” he said.
The number of people working part time because they are unable to find a full-time job, often referred to by Carney as evidence that the recovery has a way to go, climbed by 25,000 in the latest quarter to a record 1.47 million. Youth and long-term unemployment both fell.
Today’s report showed that annual pay growth picked up to 0.9 percent in the three months through October. With inflation slowing to 2.1 percent in November, it means the squeeze on household incomes that has weighed on the recovery is easing. Pay growth excluding bonuses remained at 0.8 percent.
In the third quarter, employment in central and local government rose 5,000 to 5.21 million people, boosted by hiring in the health service, the ONS said. Private-sector employment rose 246,000 to 24.4 million, the biggest increase since June 2012.
Government employment has fallen by about half a million since the government began its deficit-cutting drive in 2011. The Office for Budget Responsibility expects 1.1 million public-sector jobs to be axed in total by 2019, offset by the creation of more than 3 million private payrolls.