UNEMPLOYMENT has fallen to its lowest level in five years after 280,000 jobs were created in the UK, new figures show.
An Office for National Statistics (ONS) report shows that the jobless total across the UK fell faster than expected in the quarter to November to 2.32 million – a rate of 7.1 per cent and within a whisker of the Bank of England’s trigger point for considering raising interest rates.
Unemployment in Scotland also reached a five-year low as the jobless figures fell by 25,000 to 176,000 during the same period, the ONS said.
Scotland’s unemployment rate has now fallen to 6.4 per cent. The employment rate in Scotland also continues to be higher, at 72.7 per cent, compared to 72.1 per cent for the UK as a whole.
There was also a fall in the number of people out of work and claiming Jobseeker’s Allowance north of the Border, with this standing at 113,800 in December – a drop of 1,900 on the previous month and 24,100 lower than the final month of 2012.
The fall in unemployment sparked fears yesterday that mortgage costs could soon be on the up, with one leading economist warning the move would “kill” the economic recovery.
But Scottish Secretary Alistair Carmichael played down suggestions a rise was imminent, saying the 7 per cent figure set by the Bank’s new governor was an “indication” rather than “a definite point” for an interest rate hike.
A total of 280,000 jobs were created during the period in what was the biggest ever quarterly rise in UK employment, the ONS figures showed.
In his first forward guidance statement last year, governor Mark Carney said the Bank’s monetary policy committee (MPC) would not lift interest rates above their historically low level of 0.5 per cent until the UK’s jobless rate dropped to 7 per cent.
However, the 167,000 fall in the jobless total – the second biggest on record – to 2.3m, means the UK’s unemployment rate now stands at 7.1 per cent – down by 0.5 per cent from June-August, and by 0.6 per cent from a year earlier.
Economists, borrowing experts and politicians last night warned any interest rates hike would lead to increased pressure on household budgets and risk choking off the recovery.
Analysts had not expected the threshold to be reached until later in the year, although the Bank has stressed a figure of 7 per cent will not automatically trigger an interest rate rise.
John McLaren, an economist at the Centre for Public Policy for Regions think tank, warned an interest rate increase could “kill” any economy recovery. He said: “A rise in interest rates would feed through to mortgages and make the cost of borrowing more costly. The recovery has barely started so he won’t want to kill it stone dead.”
David Marshall, a business analyst at the Edinburgh Solicitors Property Centre, said a rise in interest rates could help those saving for property deposits, but would harm some potential buyers.
He said: “The obvious short-term impact of a rise is that the cost of borrowing is likely to go up for anyone wanting to buy their homes or for any variable mortgage. However, for anyone wanting to save for a deposit, it could be good news. There are losses and gains for both sides of the coin. The likelihood is that we won’t see any interest rates rise until later this year, though.
“But it does all mean that anyone taking out a mortgage now should check to see if there repayments will be affordable if there is an interest rates rise.”
Scottish Secretary Mr Carmichael also suggested the fall in unemployment did not mean an imminent interest rate rise.
“People should not worry,” he said. “The 7 per cent mark was an indication by Mark Carney, not a definite point when interests would be increased.”
The latest minutes from this month’s meeting of the MPC, also published yesterday, suggested it was in no rush to increase interest rates.
The minutes said that as inflation had returned to a 2 per cent target rate last month, and that “cost pressures were subdued . . . members therefore saw no immediate need to raise the Bank rate even if the 7 per cent unemployment threshold were to be reached in the near future”.
It also said “it was likely that the headwinds to growth associated with the aftermath of the financial crisis would persist for some time yet”.
MSPs called on the Bank to continue to show restraint in considering any future potential rise in interest rates, despite the fall in joblessness.
Conservative enterprise spokesman Murdo Fraser said: “We should recognise that these figures represent very good economic news. But households’ budgets are still being squeezed and given that mortgage costs make up a sizeable proportion of many people’s outgoings, any rise in interest rates would be likely to hit families hard.
“I hope that the Bank of England will show restraint.”
SNP MSP John Wilson said: “Any decision to increase interest rates at this time needs to be tempered with the fact that household incomes have effectively been frozen for three or four years.”
Policymakers said that when the time does come for rates to be raised, “it would be appropriate to do so only gradually”. Andrew Goodwin, senior adviser to economic forecasters the EY ITEM Club, said: “We expect the threshold to be lowered to 6.5 per cent, but the MPC should not stop there; an additional condition based on real wage growth should be introduced.
“As the minutes make clear, there is no prospect of a rate rise in the near future. Raising interest rates too soon, before real wages have begun to improve and growth has broadened out, could risk choking off the fragile consumer-led recovery.”
But James Knightley, of ING Bank, said that with prospects for the economy improving and the clear threat of the 7 per cent threshold being breached in the next month or two, the probability of an interest rate rise this year was increasing.
On the FTSE 100, fears of an earlier-than-expected rise held back shares, with early gains in trading falling away to leave the index in subdued mood.
Prime Minister David Cameron tweeted: “The biggest quarterly increase in employment on record. More jobs means more security, peace of mind and opportunity for the British people.”
But TUC general-secretary Frances O’Grady said: “While headline unemployment is within a whisker of the Bank’s forward guidance threshold, an early interest rate rise would clobber mortgage-holders and businesses, jeopardising our economic recovery.”