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.”

Sport
footballLIVE City face Stoke, while Warnock returns to Palace dugout
Arts and Entertainment
books
Life and Style
3D printed bump keys can access almost any lock
gadgets + techSoftware needs photo of lock and not much more
News
i100
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Arts and Entertainment
Inside the gallery at Frederick Bremer School in Walthamstow
tvSimon Usborne goes behind the scenes to watch the latest series
Life and Style
Silvia says of her famous creation: 'I never stopped wearing it. Because I like to wear things when they are off the radar'
fashionThe fashion house celebrated fifteen years of the punchy pouch with a weighty tome
Arts and Entertainment
Gregg Wallace in Summer's Supermarket Secrets
tv All of this year's 15 contestants have now been named
News
i100Steve Carell selling chicken, Tina Fey selling saving accounts and Steve Colbert selling, um...
Life and Style
A picture taken on January 12, 2011 shows sex shops at the Paris district of Pigalle.
newsThe industry's trade body issued the moratorium on Friday
Arts and Entertainment
Could we see Iain back in the Bake Off tent next week?
tv Contestant teased Newsnight viewers on potential reappearance
News
i100
News
The slice of Prince Charles and Princess Diana's wedding cake and the original box from 29 July 1981
newsPiece of Charles and Diana's wedding cake sold at auction in US
Voices
The Ukip leader has consistently refused to be drawn on where he would mount an attempt to secure a parliamentary seat
voicesNigel Farage: Those who predicted we would lose momentum heading into the 2015 election are going to have to think again
Arts and Entertainment
Cara Delevingne made her acting debut in Anna Karenina in 2012
film Cara Delevingne 'in talks' to star in Zoolander sequel
Sport
Mario Balotelli pictured in his Liverpool shirt for the first time
football
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
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

Junior VB.NET Application Developer (ASP.NET, SQL, Graduate)

£28000 - £30000 per annum + Benefits + Bonus: Harrington Starr: Junior VB.NET ...

C# .NET Web Developer (ASP.NET, JavaScript, jQuery, XML, XLST)

£40000 - £50000 per annum + Benefits + Bonus: Harrington Starr: C# .NET Web De...

Clinical Negligence Solicitor

Highly Competitive Salary: Austen Lloyd: HAMPSHIRE MARKET TOWN - A highly attr...

Network Engineer (CCNP, CCNA, Linux, OSPF, BGP, Multicast, WAN)

£35000 per annum: Harrington Starr: Network Engineer (CCNP, CCNA, Linux, OSPF,...

Day In a Page

Ukraine crisis: The phoney war is over as Russian troops and armour pour across the border

The phoney war is over

Russian troops and armour pour into Ukraine
Potatoes could be off the menu as crop pests threaten UK

Potatoes could be off the menu as crop pests threaten UK

The world’s entire food system is under attack - and Britain is most at risk, according to a new study
Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

Seoul's plastic surgery industry is booming thanks to the popularity of the K-Pop look
From Mozart to Orson Welles: Creative geniuses who peaked too soon

Creative geniuses who peaked too soon

After the death of Sandy Wilson, 90, who wrote his only hit musical in his twenties, John Walsh wonders what it's like to peak too soon and go on to live a life more ordinary
Caught in the crossfire of a cyber Cold War

Caught in the crossfire of a cyber Cold War

Fears are mounting that Vladimir Putin has instructed hackers to target banks like JP Morgan
Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years

Salomé: A head for seduction

Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years. Now audiences can meet the Biblical femme fatale in two new stage and screen projects
From Bram Stoker to Stanley Kubrick, the British Library's latest exhibition celebrates all things Gothic

British Library celebrates all things Gothic

Forthcoming exhibition Terror and Wonder: The Gothic Imagination will be the UK's largest ever celebration of Gothic literature
The Hard Rock Café's owners are embroiled in a bitter legal dispute - but is the restaurant chain worth fighting for?

Is the Hard Rock Café worth fighting for?

The restaurant chain's owners are currently embroiled in a bitter legal dispute
Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival

In search of Caribbean soul food

Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival
11 best face powders

11 best face powders

Sweep away shiny skin with our pick of the best pressed and loose powder bases
England vs Norway: Roy Hodgson's hands tied by exploding top flight

Roy Hodgson's hands tied by exploding top flight

Lack of Englishmen at leading Premier League clubs leaves manager hamstrung
Angel Di Maria and Cristiano Ronaldo: A tale of two Manchester United No 7s

Di Maria and Ronaldo: A tale of two Manchester United No 7s

They both inherited the iconic shirt at Old Trafford, but the £59.7m new boy is joining a club in a very different state
Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

Robert Fisk: No victory for Israel despite weeks of devastation

Palestinians have won: they are still in Gaza, and Hamas is still there
Mary Beard writes character reference for Twitter troll who called her a 'slut'

Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

The Cambridge University classicist even wrote the student a character reference
America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

America’s new apartheid

Prosperous white districts are choosing to break away from black cities and go it alone