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UK Unemployment Plunges to 5-Year Low

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UK Unemployment Plunges to 5-Year Low

UK unemployment fell to the lowest level in almost five years, putting it within striking distance of the Bank of England’s 7 percent threshold.

Measured using International Labour Organization methods, the unemployment rate plunged 0.3 percentage points to 7.1 percent in the three months through November, the Office for National Statistics reported today. The rate of 7.1 percent was below the median forecast of economists in a Bloomberg poll, which called for 7.3 percent. Meanwhile, jobless claims fell 24,000 in December, less than economists’ forecast. Jobless claims declined by 34,300 the previous month.

The faster than forecasted drop shone the spotlight back on the Bank of England, which has used the 7 percent target as a guidepost for reviewing borrowing costs. With inflation falling to 2 percent, however, BOE policymakers say they are in no rush to raise interest rates.

Policymakers saw “no immediate need to raise Bank Rate even if the 7 percent unemployment threshold were to be reached in the near future,” read the minutes of the December policy meetings, which were also released today. The minutes showed policymakers expect the unemployment rate to reach its threshold “materially earlier than previously expected.”

BOE Governor Mark Carney made unemployment the lynchpin of monetary policy last August when he announced the central bank would not even consider raising interest rates until unemployment had fallen to 7 percent. The unemployment rate was 7.8 percent at that time. Since then, the BOE has shifted its guidance several times on when the target is expected to be reached.

For his part, Carney has remained adamant the unemployment target isn’t an immediate rate-hike trigger, and that the BOE would consider an approach consistent with long-term stability. The Monetary Policy Committee voted unanimously Wednesday to leave the borrowing rate at 0.5 percent.

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