The rate of unemployment in the UK fell to 7.1 per cent yesterday (January 22), almost reaching the level at which the Bank of England said it would consider raising interest rates.
According to the Office for National Statistics, the number of people out of work reached 7.1 per cent, meaning that the number of people unemployed fell by 167,000 to 2.32 million in the three months to November 2013, the biggest quarterly decline since the autumn of 1997 and the second largest since records began in 1971.
When the Bank’s Governor, Mark Carney, launched his ‘forward guidance’ policy last year he suggested that the Bank’s Monetary Policy Committee (MPC), which sets interest rates, would consider raising them when unemployment hit 7 per cent, although he estimated at the time that this would not be before 2016.
However, Mr Carney has since said that this level was a “threshold” rather than a “trigger” for raising rates and minutes from the MCP’s last meeting suggest that members saw “no immediate need to raise the bank rate, even if the 7 per cent unemployment threshold were to be reached in the near future”.
The Bank is expected to use the publication of its Quarterly Inflation Report next month to give an update on its guidance, possibly by lowering the threshold unemployment rate below 7 per cent or by highlighting how the threshold is not a trigger.
Policymakers said in the minutes they now expect unemployment to hit the 7 per cent marker “materially earlier than previously expected” and that the equilibrium employment “might be lower than previously thought”.
The Bank has previously said that although the UK’s historical equilibrium unemployment rate is around 5 per cent, inflation pressures could start to build at around 6.5 per cent.
