The Bank of England has acknowledged that unemployment has fallen more sharply than it predicted, but insisted this would not be a trigger for interest rates to rise.
“The projected decline in the unemployment rate was a little faster than anticipated three months ago,” according to minutes from the Bank’s Monetary Policy Committee (MPC) meeting on November 6 and 7.
Unemployment fell to 7.6 per cent in the three months to September, a fall from 7.8 per cent, not far off the 7 per cent level that the MPC said would prompt it to consider raising rates as part of its forward guidance policy.
But the committee said that “....there could be a case for not raising the Bank Rate immediately when the 7 per cent unemployment threshold was reached.
“Once unemployment had reached 7 per cent, the Committee would reassess what it had learned about the nature of the recovery,” it added.
This stance echoes comments made by Bank of England governor Mark Carney on the release of the inflation report earlier this month, when he said that the 7 per cent figure was a “way station” for the Bank to consider a rise in interest rates, not an automatic trigger.
“November’s MPC minutes echo the message of the November Inflation Report that monetary policy is on hold for the foreseeable future,” Jonathan Loynes, chief European economist at Capital Economics said.
“Overall, the main message again is not to put too much emphasis on the 7 per cent unemployment rate. Provided inflation pressures stay subdued, as we expect, interest rates are going nowhere for a long time yet even if the economy continues to grow strongly.”
