Jobless rate down - but will mortgages have to rise?
Better than expected unemployment figures will put pressure on Bank Governor to raise interest rates
A SIGNIFICANT fall in the unemployment figures by 167,000 - the biggest drop since 1997, and better than pundits had expected - gave David Cameron the edge at Prime Minister’s Questions today. But it raised the worrying spectre for Downing Street that it could lead to a rise in mortgage rates before the next general election.
That's because the overall unemployment rate has fallen to 7.1 per cent - just a shade above the seven per cent threshold for raising the bank rate set last year by Mark Carney, Governor of the Bank of England.
A rise in interest rates in the coming months would hit home-buyers who have boosted the housing market by taking out new mortgages, and seriously damage the "feelgood factor" that Cameron and Chancellor George Osborne are hoping to build in the run-up to the 2015 election.
It would also spoil the current Tory mantra that, while available income may be low, working families are benefitting from low mortgage rates.
Minutes before Cameron welcomed the new jobless figures in the Commons, Jeremy Warner, business editor of the Daily Telegraph, said a small rise in interest rates was "now absolutely necessary to take the heat out of what is another housing bubble to give people a pause for thought about how much they are borrowing".
Warner added: "We have only just come off the top of very high levels of borrowing and now here we are go again."
He was speaking on the BBC's Daily Politics show from Davos where Osborne is attending the World Economic Summit. The Chancellor may be crowing about the recovery of the British economy - the jobless fall comes within 24 hours of the IMF upgrading its UK growth forecast - but a rise in interest rates would give the Treasury and Number Ten nightmares of a return to families being unable to pay their mortgage debts and/or falling into negative equity.
Warner isn't alone in saying Carney needs to act but will doubtless be pressured by the Treasury not to do so: other economists were saying the same thing on the lunchtime news programmes.
Peter Warburton, director of independent financial analysts Economic Perspectives, said on Radio 4's World At One that the Bank of England was "in a difficult position" because it clearly had not expected the economy to move ahead so quickly. "I would argue the best way to safeguard recovery is to begin to rise interest rates straight away," he said.
Before the inevitable clash between Osborne and Carney comes, there was a predictable face-to-face between Cameron and Miliband in the Commons over the jobless figures, with the Labour leader arguing they masked the true story of falling wealth.
He accused the PM of being "completely complacent" and out of touch with ordinary people who, he said, were £1,600-a-year worse off because of prices rising faster than wages. He accused Cameron of "doing his Bullingdon Club routine".
Cameron hit back at Miliband and his shadow chancellor Ed Balls for getting their predictions of doom wrong.
Pointing at Balls, Cameron said: "He predicted 1 million more unemployed and the deficit would go up. The deficit is coming down. Our plan is working. There are 1.3 million more in work. We are securing Britain’s future. It would be put at risk by Labour."
Privately, some Labour MPs are accusing the government of "fiddling" the employment figures by including part-time workers and staff on zero-hours contracts in the totals.
Meanwhile, Nick Clegg, the Lib Dem leader, watched silently from his perch next to the PM, hoping that the row over the economy will take the heat out of his own party’s split over the Lord Rennard sex harassment allegations. On this issue, Nick Robinson, the BBC’s political editor, said on the Daily Politics that he sensed there was now a Lib Dem mood in favour of conciliation. He said: "They have peered over the edge and are saying we don’t really want to go there."