Unemployment falling faster than expected

Unemployment in Britain appears to be falling slightly faster than forecast, Bank of England policymakers concluded at their October rate setting meeting.  This is against a backdrop of a robust recovery which is proving stronger than expected.

In August, the Bank of England committed to keep interest rates on hold until unemployment hits 7%, something it forecast would take three years, unless inflation threatens to get out of control or there are major risks to financial stability.

Since the Summer growth has been strong and the rate of unemployment has dropped to 7.7% from 7.8%.  This has prompted analysts to predict the Bank of England 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,” minutes of the Monetary Policy Committee’s October 8-9 discussion 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.”

The MPC voted unanimously to keep interest rates on hold, with no signs that any of the ‘knock-out’ clauses that can void the forward guidance policy were close to being breached, and saw little case for more stimulus.

Bank of England staff now forecast that the economy would grow by 0.7% a quarter, or slightly faster, in the latter part of 2013.  A stronger growth rate than assumed in August but less than that indicated by some private-sector surveys.