A big fall in unemployment sent the pound up against the dollar yesterday and prompted traders to place bets on an earlier rise in interest rates from the Bank of England's Monetary Policy Committee.
The Office for National Statistics reported the headline unemployment rate dipped to 6.9 per cent in the three months to February, below the 7 per cent threshold at which the Bank had said it would consider a rise in rates.
This drop, which was bigger than analysts had expected, led financial market to price in a hike in interest rates by April 2015, rather than May 2015 previously.
That would mean base rates rising above their record lows of 0.5 per cent a month before the next general election. "We think this release overall adds to the case for expecting the MPC to go earlier than they indicated back in February – potentially at the end of this year" Allan Monks of JP Morgan said. In another reflection of the strong data, the pound yesterday rose 0.38 per cent against the dollar to $1.6793 and 0.4 per cent against the euro to €1.21.
The number of unemployed fell 77,000 in the three months to February on the previous quarter, taking the total jobless numbers to 2.24 million. The dole claimant count in March fell 30,400 in the month to March to 1.14 million.
Employment for the most recent quarter rose by 239,000, hitting 30.39 million. The increase was driven by self-employment, which rose by 146,000. There are now 4.5 million people designated as self-employed, a record 15 per cent of the workforce.
Joe Grice, the chief economist at the ONS, said: "These figures – rising employment and falling unemployment and inactivity – continue the strong trend in the labour market that has been seen in recent months."
When the Bank introduced its policy of "forward guidance" on interest rates last summer it did not expect unemployment to descend to the 7 per cent threshold until the second half of 2016. But when it became clear the rate was declining much more swiftly than it anticipated, the Bank in February announced a new regime whereby the timing of the next rate rise would depend on various measures of slack in the labour market, including under-employment.
The ONS reported that on most of these measures the amount of slack declined in the latest period. The labour participation rate rose, total hours worked went up, the vacancies to unemployment rate improved and the numbers working temporary jobs due to lack of permanent positions declined.
However, one measure, average hours worked per week, worsened, indicating more capacity than previously. Average hours worked fell by 0.4 per cent in the three months to February.
"The MPC's assessment of these developments in the May Inflation Report will be crucial" Ross Walker, of Royal Bank of Scotland, said.