UK unemployment unexpectedly falls to 7.4%

UK unemployment unexpectedly fell in the three months through October to the lowest since April 2009, lurching toward the 7 per cent threshold at which Bank of England officials say they will consider raising interest rates.

The unemployment rate measured by International Labour Organisation methods declined to 7.4 per cent from 7.6 per cent in the quarter through September, the Office for National Statistics said in London today.

The median forecast of 32 economists was for the rate to stay unchanged. In November, jobless claims fell by 36,700, more than estimated. The figures may fuel speculation that the BOE will raise interest rates earlier than forecast.

Expectations an increase could come as early as the end of 2014 have led Governor Mark Carney to stress that reaching the 7 per cent threshold would not automatically trigger tighter policy. Today’s data “raises the risk of an earlier interest-rate rise,” said Rob Wood, an economist at Berenberg Bank in London and a former BOE official.

“It’s quite easy to hit the threshold by the middle of next year at this rate. It’s terrific news - the UK economy is growing more quickly than expected - but it does matter for the BOE as we’re not far from reaching their threshold.”

The drop in the three-month jobless rate between October and September, which the ONS said amounted to 0.3 percentage point, was the largest since records began in 1971. A 7.4 percent unemployment rate was forecast by none of the economists surveyed by Bloomberg.

The pound rose after the report and was trading at $1.6359 as of 10.20am London time, up 0.6 per cent from yesterday. The 10-year gilt yield rose 4 basis points to 2.91 per cent. A separate release today showed BOE policy makers said a further appreciation of the pound could hamper the economic recovery. In the minutes of its December 4th-5th meeting, the monetary policy committee said while sterling’s strength may help ease inflation pressures, it could also impede growth in an environment of weak global demand.

Unemployment fell 99,000 in the latest quarter, the biggest drop for 13 years, to a four-year low of 2.39 million.

Figures based on a restricted sample size show the jobless rate declined to 7 percent in October from 7.1 per cent in September. The number of people in work climbed by 250,000 to a record 30.1 million during the quarter through October, the biggest increase since July 2010, the ONS said.

Reuters