Bets on earlier rate rise after unemployment falls
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.
- 2 Rarest Beanie Baby of them all could be sold for £62,500 on eBay
- 3 Professional big game hunter Ian Gibson crushed to death by elephant during hunt
- 4 Farmer told to tear down mock-Tudor castle after hiding construction behind hay bales
Migrants crossing the Mediterranean: Pope Francis joins calls for EU action on boat refugees
Yemen crisis: Meet the child soldiers who have forsaken books for Kalashnikovs
Alan Rickman admits editing 'terrible' script with friends in Pizza Hut behind backs of writers on Robin Hood: Prince of Thieves
Rarest Beanie Baby of them all could be sold for £62,500 on eBay
Isis in Afghanistan: Group claims responsibility for Jalalabad suicide bombing that killed 35
If I’m being racially abused I don’t need a stranger with a saviour complex to rescue me
The only black face in the Ukip manifesto is on the page about overseas aid
Ukip is the only main political party to not address LGBT rights in its manifesto
Food banks: One million Britons will soon be using them, according to Trussell Trust
Religion isn't growing, it is becoming vigorous in its demise, says philosopher AC Grayling
BBC election debate: The one photo that summed up the whole 90-minute leaders debate
iJobs Money & Business
£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...
£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...
£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...
£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...