Bank of England in no rush to raise rates as unemployment plunges

British unemployment plunged to within a whisker of the Bank of England's level for considering an increase in interest rates, data showed on Wednesday, but the central bank stressed it would be in no rush to act.
The unemployment rate dropped to 7.1 percent in the three months to November, a fraction above the 7 percent level which the bank has said is its threshold for thinking about raising interest rates from their current all-time low of 0.5 percent.

Sterling hit a one-year high against the euro and British government bond spreads over German debt widened to an eight-year high as investors bet that the Bank of England will raise interest rates sooner than it has been signalling.

Citi's chief UK economist Michael Saunders brought forward his estimate by six months to the fourth quarter of this year. "We expect the MPC (Monetary Policy Committee) will lift the policy rate to 2 percent ... by late-2015, still leaving policy supportive of growth," he said.

The rate of 7.1 percent was below any forecast by economists in a Reuters poll and the lowest in nearly five years. It was down from a previous level of 7.4 percent, the Office for National Statistics said on Wednesday.

The number of people in work grew by a record amount, a further sign of the economy's rapid turnaround.

BoE policymakers stressed, however, they would not be hurried into raising rates. Their case has been helped by a fall in inflation to the Bank's target for the first time in more than four years.

"Members therefore saw no immediate need to raise Bank Rate even if the 7 percent unemployment threshold were to be reached in the near future," they said in minutes of their January policy meeting, released at the same time as the jobs data.

The minutes also made clear that when an interest rate rise does eventually come, fragile prospects for growth and low inflation means moves will be gradual.

The BoE is expected to use the publication of its Quarterly Inflation Report next month to give an update on its guidance, possibly by lowering the threshold unemployment rate below 7 percent or by underscoring how the threshold is not a trigger.

Policymakers said via the minutes they now expect unemployment to hit 7 percent "materially earlier than previously expected" and that the equilibrium employment "might be lower than previously thought".

The BoE has previously said that although Britain's long-run equilibrium unemployment rate is around 5 percent, inflation pressures could start to build around 6.5 percent.

THRESHOLD APPROACHING

The jobless rate was the lowest since the first quarter of 2009. The ONS said the number of people claiming jobless benefits fell by 24,000 in December, compared with a forecast for a fall of 35,000 in the Reuters poll.

It said the number of people in work rose by 280,000 in the three months to November, an all-time record.

Wage pressures remained low. Average weekly earnings rose by 0.9 percent on the year, half the rate of inflation.

The BoE put unemployment at the heart of its monetary policy last August when it said it would not think about raising borrowing costs - which have been at the record low since 2009 - until the rate fell to 7 percent.

Since then, Britain's recovery has picked up more speed than the Bank expected and unemployment has fallen fast. The International Monetary Fund on Tuesday sharply raised its forecasts for British economic growth this year.

The IMF also urged central banks around the world to avoid raising interest rates too soon to avoid choking off the recovery in their economies.

To quell speculation that the BoE might be hurried into raising interest rates, Governor Mark Carney has repeatedly stressed that unemployment falling to 7 percent would not be an automatic trigger for a rate hike.

The details of this month's BoE policy discussion strengthened that message, making clear the Bank does not intend to raise rates soon, even if unemployment hits 7 percent soon.

Despite its rapid recovery, the British economy remains 2 percent smaller than before the financial crisis.

As more long-term unemployed people have found jobs recently, the medium-term equilibrium rate could be a bit below 6.5 percent. This caused some traders to see a greater chance that the BoE could lower its 7 percent guidance threshold as soon as its February meeting. BoE official have previously floated the possibility of a lower unemployment threshold.

Any such decision is likely to be complex given the uncertainties around the labour market. The BoE said productivity was not picking up as expected.

That could push up longer-term inflation pressures and possibly strengthen the argument for not further delaying consideration of higher interest rates.

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UK car production passes 1.5m amid growing consumer confidence

Almost 10% more cars produced last month than in September 2012, boosted by strong domestic market

Car production in the UK has continued its upward surge with more than 1.5m vehicles built over the past 12 months – a volume unmatched since the financial crisis began.

Boosted by a buoyant domestic market, as well as demand for luxury models in the far east, almost 10% more cars, 140,888, were produced last month than in September 2012.

The month's tally pushes the total for the year to 1,125,433 units, nearly 4% more than were made in the first nine months of 2012.

Mike Hawes, the chief executive of the Society of Motor Manufacturers and Traders (SMMT), said: "Boosted by strong domestic demand, September's 9.9% rise in car manufacturing reinforces how the sector is one of the UK's biggest success stories of recent years.

"This year alone, more than £2.6bn has been committed across the UK automotive sector, from the supply chain to global car manufacturing brands.

"This long-term financial commitment and robust demand for UK-built products demonstrate the global appetite for high-quality, desirable products borne of the UK's world-class design, R&D and engineering."

Cheap financing deals and growing British consumer confidence in an economic recovery has seen the UK buck the sliding sales elsewhere in Europe with unparalleled sales growth, helping to drive up the new production figures.

Nissan, the largest manufacturer among the 30 automotive brands manufacturing 70 models in the UK, recently announced that its Sunderland plant would move to 24-hour production in the new year to meet demand. The plant is also the European base for production of the all-electric Leaf car.

Booming exports of luxury brands have also underpinned production, with Jaguar Land Rover, the Tata-owned carmaker whose three UK plants employ 26,000 people, recently reporting sales for the first three quarters of 2013 had already outstripped 2012's annual total.

The car production figures will be a further boost to coalition hopes of sustained recovery, particularly with its stated aim of rebalancing Britain's economy back towards manufacturing.

Last year's car exports, at over £30bn, accounted for 10% of UK exports and that figure looks set to rise. The prime minister's office, @David_Cameron, tweeted: "Great to see a sharp rise in car manufacturing in the UK. More than a million cars have been made so far this year. #GlobalRace".

While car production continued to rise, the SMMT reported that manufacturing of commercial vehicles was down by 27% year-on-year.

Hawes said the "subdued" figures were down to continuing uncertainty in the EU and restructuring of UK operations, adding: "While the overall market is striving against tough conditions, there remains cause for optimism in some areas, with the truck sector outperforming the market in September."
Article Source : http://www.guardian.co.uk
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New car sales hit five-year high

SMMT figures show rise for 19th consecutive month as car market 'reflects growing economic confidence'

Car sales jumped in September to record the strongest monthly figures in more than five years as the automotive industry underlined its importance to the UK's economic recovery.

According to the Society of Motor Manufacturers and Traders (SMMT) sales rose 12.1% last month to 403,136 vehicles, following 10.9% annual growth in August and 12.7% growth in July.

The car industry has now registered 19 months of improving sales and become widely regarded as one of the main reasons why the UK avoided a triple dip recession this year. The numbers for September – a key sales month when new registration plates are issued – represent the highest monthly total since March 2008.

Along with mobile phone contract sales and a surge in demand for hotels and restaurants, cars have proved to be the main big-ticket item favoured by consumers, who until recently have shunned new furniture and clothes in favour of new vehicles.

Private new car sales were particularly healthy, which Howard Archer, UK economist at IHS Global Insight, said was "fuelled by sharply improved consumer confidence and record high employment".

He said consumers were also taking up special offers and packages, and shifting to more fuel-efficient cars at a time of high petrol prices.

"The rise in consumer confidence to a 70-month high in September and ongoing improvement in business confidence came at a particularly good time for the car industry given that September is a key month for sales," he said.

UK car sales. Source: SMMT

"Furthermore, there are likely to be a significant number of people who have held off for an extended period from replacing their car, due to difficult times, who have now reached the stage where they really need to act and are more prepared to do so due to the brighter outlook."

The mis-selling of payment protection insurance has also been singled out as a boon for car sales, with some of the £11.5bn in compensation paid out to consumers being spent on new vehicles.

Private car sales climbed 17.9% year-on-year to reach 208,844 in September. Overall, private car sales were up 16.7% year-on-year in the first nine months of 2013.

However, several economists have issued warnings that sales may plateau as the capacity of consumers to borrow to buy new cars begins to wane.

The latest figures show that annual earnings growth was limited to 1% in the three months to July while consumer price inflation stood at 2.7% in August.

On the plus side, real household disposable income rose by 1.5% quarter-on-quarter in the second quarter, mainly as a result of the coalition government's hike in the personal tax threshold, but this followed a dip of 1.7% in the first quarter and disposable incomes were down by 0.7% year-on-year.

Most of Britain's car manufacturing is exported and the Nissan Note, which recently began production at the company's UK base in Sunderland is no exception. Honda, Toyota and BMW's Oxford plant making Mini Coopers are all working at capacity and exporting around eight out of 10 cars they produce.German carmaker Daimler said on Friday that it sold a record number of Mercedes-Benz cars in September. The Stuttgart-based firm said it sold 142,994 vehicles in September, up 15.9% on the same month a year before.

It credited new versions of its E-Class and S-Class sedans, as well as increased sales of its smaller models such as the A, B and CLA classes. Compacts increased sales as a group by 68.3% in the first nine months of the year.

September sales rose 6.7% in the US, the brand's biggest single market, and 21.2% in China. Sales at home in Germany rose only 1.5%, however.

Mercedes-Benz also increased sales 14.2% in Europe, much of it in Britain and areas such as Sweden that have recovered more strongly.

Archer said: "The motor industry will be hoping that the recent improvement in UK economic activity is sustained and extended, and that this leads to further strengthening in consumer and business confidence, and their willingness to splash out on new cars."

Article Source : http://www.guardian.co.uk

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