MPC says further fall in rates is looking less likely

The Bank of England yesterday gave its first signal this year that the next move in interest rates could be up, as new figures showed unemployment tumbling to a 25-year low.

The minutes of the meeting two weeks ago of the Monetary Policy Committee, which voted eight to one to keep rates on hold, showed it was worried by rising inflation.

"For some the [recent economic] news made it rather less likely that the next movement in rates would be down," the minutes said. "The committee should monitor the situation, being prepared to adjust rates in either direction."

The comments come after robust data yesterday on the labour and housing markets and Tuesday's figures showing inflation at a two-year high.

Unemployment tumbled in June to its lowest level since August 1975, while an estate agents' trade body said the housing market was at its strongest level for 15 months.

Analysts said the MPC was unlikely to raise rates over the summer while the global economy was fragile – as highlighted yesterday by the Federal Reserve chairman Alan Greenspan – but said the next move would be up.

"There is scant reason for expecting a slowdown in consumer spending," said Michael Hume at Lehman Brothers. "Consequently we stick with our view that rates will be on hold for the next few months and... hiked in November."

Official figures showed the number of people out of work and claiming benefit fell 12,000 in June, defying claims that the labour market had turned. The claimant count is now 963,700, the lowest since August 1975.

The number in work stands at an all-time high of 28.18 million. More than 200,000 new jobs have been created so far this year despite growing fears of a global recession – more than off-setting 32,000 manufacturing job losses.

However there was ammunition for those arguing against a rate rise from the average earnings figures that showed a slow down in pay growth.

Average earnings growth fell from 5.2 per cent in April to 4.5 per cent in May, the latest figure published yesterday. This is in line with the maximum the Bank sees as compatible with hitting its inflation target. The fall was mainly due to a sharp slowdown in the private sector, and especially in bonuses in financial services.

Public-sector pay, however, surged to an eight-year high with average earnings growing at 5.3 per cent.

An analyst at National Statistics, the Government's data body, said: "This was driven by health and education sectors with increases as well in public administration."

The Royal Institution of Chartered Surveyors said its survey of members showed the greatest optimism about house prices since March 1999.