Fears raised that drop in unemployment could prompt early rise in interest rates

Increase in interest and mortgage rates would be unwelcome news for Coalition

Political Editor

A sharp fall in unemployment may prove a mixed blessing for the Government amid predictions that it could pave the way for a rise in interest rates before the 2015 general election.

The number of jobless fell by 99,000  to 2.3m in the three months to October, the biggest reduction in a decade and the lowest unemployment rate since 2009.  The number of people in work topped 30m for the first time on record, while the 537,000 jobs created in the private sector was 10 times the number lost in the public sector.

However, the lower than expected 7.4 per cent jobless rate fuelled speculation that the Bank of England would consider raising interest rates earlier than expected.  Under the Bank’s “forward guidance” strategy, its Governor Mark Carney has said it will look again at the record low 0.5 per cent rate when unemployment falls to 7 per cent.  This could now happen as early as next autumn, months before the May 2015 election.

An increase in interest and mortgage rates would be unwelcome news for the Conservatives and Liberal Democrats, as it would fuel Labour’s attacks on the “cost of living crisis.” Wednesday’s labour market statistics also showed that earnings rose by 0.9 per cent in the 12 months to October, well below the 2.1 per cent inflation rate, so earnings are still falling in real terms.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "This is an extremely strong set of labour market data, indicating that unemployment is currently coming down rapidly in reaction to the economy’s markedly improved performance in recent months and much healthier business confidence.” He said  the fall "can only fuel market suspicions that it is very likely to get down to 7 per cent before the end of 2014, thereby opening the door to the Bank of England raising interest rates".

But other analysts said rates might still not rise until mid-2015 because inflation was relatively low. Minutes of the Bank’s Monetary Policy Committee (MPC) meeting this month, published on Wednesday, showed that it expected inflation to fall towards 2 per cent in the first quarter of next year and later decline further amid a strengthening pound.

Samuel Tombs of Capital Economics said: “Even if the economic recovery continues to bring the unemployment rate down rapidly, the benign inflation outlook will enable the MPC to keep interest rates on hold for a long time yet."

Graeme Leach, chief economist at the Institute of Directors, said: "The reduction in unemployment to 7.4 per cent will heighten speculation about tighter monetary policy, but this is likely to be a triumph of hype over reality. Inflationary pressures are likely to continue to ease in 2014, due to rising productivity and the strength of the pound."

Mr Carney has described a 7 per cent unemployment rate as a  “threshold” rather than a “trigger.” He told peers on Tuesday that the forward guidance "gives households and businesses the confidence that interest rates won't go up until jobs, incomes and spending are recovering at a sustainable pace".

Ed Miliband welcomed the overall job statistics but raised concern over the 1.47m people in part-time jobs because they could not find full-time work, the highest since records began in 1992. "It is good our economy is creating more jobs, but the problem is that too many of them are part-time or low-paid or insecure," he said at Prime Minister’s Questions.

David Cameron replied  that 70 per cent of the  jobs created since the 2010 election were full-time.  He said Wednesday’s figures "do paint an encouraging picture",  adding: "We have talked before about 1m more people in work under this Government. It is now 1.2m more people in work. "The plan is working. Let's stick at it and get unemployment  down even further.”

Mr Cameron added: "There shouldn't be an ounce of complacency because we have still got work to do to get our country back to work.”

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Tradewind Recruitment: Geography Teacher

£90 - £140 per day: Tradewind Recruitment: On behalf of a successful academy i...

Investigo: Finance Business Partner

£45000 - £50000 per annum: Investigo: My client, a global leader in providing ...

Austen Lloyd: Commercial Property Solicitor - West London

Excellent Salary: Austen Lloyd: WEST LONDON - An excellent new opportunity wit...

Recruitment Genius: Florist Shop Manager

£8 - £10 per hour: Recruitment Genius: A Florist Shop Manager is required to m...

Day In a Page

Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

Celebrities call on David Cameron to take more Syrian refugees

One young mother tells of torture by Assad regime
The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

The enemy within

People who hear voices in their heads are being encouraged to talk back
'In Auschwitz you got used to anything'

'In Auschwitz you got used to anything'

Survivors of the Nazi concentration camp remember its horror, 70 years on
Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

Autumn/winter menswear 2015

The uniforms that make up modern life come to the fore
'I'm gay, and plan to fight military homophobia'

'I'm gay, and plan to fight military homophobia'

Army general planning to come out
Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

What the six wise men told Tony Blair

Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

25 years of The Independent on Sunday

The stories, the writers and the changes over the last quarter of a century
Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

Homeless Veterans appeal

As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

Smash hit go under the hammer

It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

The geeks who rocked the world

A new documentary looks back at origins of the computer-games industry
Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

Belle & Sebastian is taking a new direction

Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
America: Land of the free, home of the political dynasty

America: Land of the free, home of the political dynasty

These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
A graphic history of US civil rights – in comic book form

A graphic history of US civil rights – in comic book form

A veteran of the Fifties campaigns is inspiring a new generation of activists
Winston Churchill: the enigma of a British hero

Winston Churchill: the enigma of a British hero

A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
Growing mussels: Precious freshwater shellfish are thriving in a unique green project

Growing mussels

Precious freshwater shellfish are thriving in a unique green project