Unemployment falling faster than BoE predicted

Bank of Englands Mark Carney committed to freeze. Picture: Getty

New governor Mark Carney committed in August to freeze rates at historic lows of 0.5 per cent until unemployment came down from a then-figure of 7.8 per cent to 7 per cent – saying it would probably take three years.

Since then it has emerged that UK economic growth has been strong and the jobless total has already fallen to 7.7 per cent.

The rise in employment has led many City economists to forecast the Bank would amend its forecasts and eventually raise rates earlier.

“The fall in unemployment in the three months to July appeared to reflect growth in full-time permanent jobs,” the minutes of the Bank of England monetary policy committee (MPC) for its 8 October meeting showed.

“It now therefore seemed probable that unemployment would be lower, and output growth faster, in the second half of 2013 than expected at the time of the August inflation report.”

Peter Dixon, an economist at Commerzbank, said that the Bank’s recognition that slack in the economy was disappearing more quickly than thought in August suggested the central bank might bring forward its estimate for when unemployment falls to 7 per cent.

“Whether it will be in November is perhaps premature to say but, over the course of the next few months, I will certainly be looking for indications that they might need to bring it forward,” Dixon said.

Capital Economics, a consultancy, said a change in guidance for falling unemployment as soon as the November MPC meeting was probable.

But it said interest rates still looked set to stay at low for some time given the scope for productivity improvements in the UK economy.

Even in August most private-sector economists already forecast the jobless rate would fall much faster than the Bank predicted, and for rates to rise much sooner than late 2016.