Wednesday, January 22, 2014
Unemployment tumbles - a nice kind of headache for the Bank
Posted by David Smith at 09:45 AM
Category: Thoughts and responses

We have been used to strong job market figures, but these were corkers. The employment rate, 72.1%, is up by 0.5 points in September-November, compared with July-August. The rise in the latest three months, an astonishing and record 280,000, took the level of employment to 30.15 million.

The unemployment rate, now the most-watched indicator thanks to Mark Carney's forward guidance, fell to 7.1%, down from 7.6% in June-August. Unemployment fell by 167,000 in the latest three months, another huge drop.

If you were looking for bad news in this release it would be that average earnings in the latest three months were up by only 0.9% on a year earlier on both the total and regular pay measures. That may change in the coming months as the labour market tightens.

The Bank of England's monetary policy committee did not know what the figures would be when it held its monthly meeting earlier this month but makes clear in its minutes that when unemployment hits 7% there would be "no immediate need to raise Bank Rate even if the 7% unemployment threshold were to be reached in the near future. Moreover, it was likely that the headwinds to growth associated with the aftermath of the financial crisis would persist for some time yet and that inflationary pressures would remain contained."

Some see this as a headache for the Bank and Mark Carney. But it is a nice kind of headache. Inflation is on target and the job market is very strong.