January 24, 2014 - Rachel Miller
The governor of the Bank of England, Mark Carney, has ruled out any early rises on interest rates — despite the fact that levels of unemployment in the UK have fallen close to the point at which he previously said he would consider increasing rates.
According to the Office for National Statistics (ONS), the UK unemployment rate has dropped to 7.1%. The ONS said that the number of people out of work fell by 167,000 to 2.32 million in the three months to November. And the number of people claiming Jobseeker's Allowance fell by 24,000 to 1.25 million in December.
In August 2013, Mark Carney suggested that interest rates could only rise when unemployment reached 7% or less. But on Thursday’s Newsnight programme, he promised to keep interest rates at 0.5% for the time being regardless of the jobless figures. Carney said: "The worst of the crisis is behind us but the financial system is not functioning as well as it could."
John Cridland, director-general of the CBI, said: "Now is not the time to raise interest rates. As the latest MPC (Monetary Policy Committee) minutes show there is still considerable slack in the labour market and inflationary pressures have eased, so interest rates can remain low for some time to come to aid the recovery."
Mark Beatson, chief economist at the Chartered Institute of Personnel and Development (CIPD), said: "We have recently seen unemployment start to fall quickly and forecasts being revised downwards but, even so, [these] figures are a surprise with the headline unemployment rate falling from 7.4% to 7.1% in a single month. We should remember these figures are statistics with margins of error attached to them and this does not mean we should expect to see falls of this size every month."
He added: "Employment growth of this scale suggests that we may find that the fourth quarter of 2013 saw little or no growth in labour productivity. The weakness of productivity growth and the healthy state of the labour market explain why earnings growth remains below 1%, and these figures give little indication there will be any substantial movement in wage growth in the short term."
Image: Bank of England on Flickr