Mark Carney's forward guidance policy on interest rates could come under even greater market pressure this week when the Office for National Statistics reports the unemployment rate for the three months to July.
The Governor and the Bank of England have pledged not to even consider raising interest rates until the UK official jobless rate falls below 7 per cent, something it does not expect to happen until the middle of 2016. But markets have disregarded this guidance and are presently pricing in a rise in the Bank's base rate by early 2015, or even late 2014. Some City analysts believe that the jobless rate could decline from its present level of 7.8 per cent this week, bringing the target closer into view.
"We expect to see the unemployment rate make progress in tracking towards this threshold, with our forecast for the coming release envisaging a tick down from 7.8 per cent to 7.7 per cent," said Victoria Clarke of Investec. Any such decline would be likely to bolster traders' expectations of an early rate rise, possibly leading to a further tightening of money market rates.
Rob Wood of Berenberg Bank thinks the unemployment rate will stick at 7.8 per cent this week. But he warned that the monthly Jobseeker's Allowance claimant count figures for August, which are also reported by the ONS this week, could decline and send markets a strong signal over falls in the unemployment rate in future months.
Mr Carney said in a speech last month that if interest rates continued to rise, threatening the recovery, the Bank would consider injecting more stimulus into the economy.