Sharp fall in jobless rate raises spectre of rate rises

UK unemployment rate drops to 7.4%, but sharp dip means BoE may need to raise interest rates earlier

LAST UPDATED AT 14:43 ON Wed 18 Dec 2013

THE spectre of rising interest rates has been unleashed by a higher-than-expected drop in the UK's unemployment rate.

The number of people out of work is now 7.4 per cent, the lowest level since 2009, according to figures released by the Office for National Statistics (ONS). It says the number of people out of work fell by 99,000 to 2.39 million in the three months to October.

David Cameron said the unemployment figures showed "the plan is working". The PM added: "Let's stick at it and get unemployment down even further."

Labour leader Ed Miliband said the unemployment rate was welcome, but said more people were working part-time because they could not get the hours they need.

The latest unemployment rate is below the figure predicted by analysts, the BBC's economics correspondent Hugh Pym writes. He says there is plenty of good news in today's ONS figures with both the rate of unemployment and the number of people in work "the most positive in four years".

The number of job vacancies being advertised by employers is at the highest since 2008, the ONS says.

While the unemployment figure suggests the recovery is gaining momentum, Pym warns that "much of the attention" will be focused on its impact on monetary policy. The Bank of England has cited a seven per cent unemployment rate as the point at which it will consider interest rate rises.

"The key question now is whether the seven per cent rate is reached before the Bank expects - possibly in the autumn of next year," Pym writes.

The announcement of the unemployment rate caused the pound to jump, The Guardian reports. The currency rose by almost a cent against the dollar, to $1.635, as investors bet on an earlier-than-expected rate rise.

The strengthening job market appears to have had little impact on wages, which continue to be squeezed, the Guardian says. Total pay rose at an annual rate of 0.9 per cent in October, the ONS said. Given that the inflation rate for the same month was 2.2 per cent it seems that living standards in the UK are continuing to fall. · 

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