UK unemployment rate ticks up, underlines steady stance on rates

Britain's unemployment rate unexpectedly edged up in the three months to December to mark a first rise in almost a year, underlining a message from the Bank of England that it is in no rush to hike borrowing costs.
The jobless rate edged up to 7.2 percent in the three months to December compared with 7.1 percent in November, the Office for National Statistics said on Wednesday.

That was the first rise since the three months to February 2013 and was higher than the unchanged reading forecast by economists in a Reuters poll.

But the number of claimants of jobless benefits - a narrower category than those who are deemed unemployed - fell for the 15th consecutive month, while wage growth accelerated.

That suggested a mixed picture for the labour market, adding weight to last week's shift of emphasis by the central bank to a broader range of measures of slack in the economy when considering changes to monetary policy.

The BoE was forced last Wednesday to overhaul its previous forward guidance policy that hinged on a 7.0 percent unemployment rate threshold, a level almost reached in the three months to November.

It also said it was in no rush to hike rates.

The minutes from the BoE's last meeting, also released this Wednesday, showed policymakers had no disagreements about major changes to the central bank's forward guidance policy.

"(With) weaker inflation below target, the unemployment rate tantalisingly moving away from their threshold, it helps to take the pressure off the BoE for early rate increases," said Brian Hilliard, economist at Societe Generale.

Sterling fell to a session low against the dollar and the euro while gilt futures extended gains after the data.

The ONS said the number of people claiming jobless benefits fell by 27,600 in January, compared with a forecast for a decline of 20,000 in a Reuters poll.

Wage growth has lagged inflation over the last years, and the squeeze on incomes is a key battleground of next year's general election.

Average weekly earnings rose by 1.1 percent in the three months to December 2013 compared with the same period in 2012 - its highest since July last year, although still below the inflation rate.

Excluding bonuses, average weekly earnings rose by 1.0 percent by the same comparison.

The annual inflation rate was 1.9 percent in January - below the BoE's target for the first time in over four years.

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UK economy grows at fastest rate in six years in 2013

Britain's economy in 2013 recorded its fastest annual growth since the financial crisis despite a slight slowdown in the last three months of the year, official data showed on Tuesday.

Supporting expectations for a bright 2014, Britain's gross domestic product rose by 0.7 percent in the fourth quarter, the Office for National Statistics said - in line with economists' forecasts for a small reduction from the third quarter's pace.

This rapid rate of growth - which is above Britain's long-run trend - is likely to increase speculation about when the Bank of England will raise record-low interest rates.

BoE Governor Mark Carney has said there is no need for rates to rise anytime soon, as Britain's total output is still well below pre-crisis levels. But unemployment has fallen far faster than the bank forecast in August, raising questions about what long-term inflation pressures might be building in the economy.

Tuesday's quarterly GDP figure took Britain's full-year growth for 2013 up to 1.9 percent from just 0.3 percent the year before. This is the highest since 2007, although total output is still 1.3 percent below the pre-financial crisis peak reached in the first three months of 2008 - a weaker situation than in almost all other big advanced economies.

A long list of economic indicators over the last few months have suggested Britain's economy is recovering faster than either policymakers or independent forecasters predicted.

Data from the Confederation of British Industry released earlier on Tuesday suggest 2013's strong growth had continued into January.

Figures last week showed British unemployment plunged to within a whisker of the Bank of England's level for considering an increase in interest rates, but the central bank stressed it would be in no rush to act.

Tuesday's figures will also be a boon for Britain's coalition government.

With growing evidence the recovery is gaining strength, opinion polls for the 2015 election suggest the Conservative-led government still lags behind the Labour opposition, which says Britons have been hurt by the rising cost of living.

Output in Britain's service sector - which makes up more than three quarters of GDP - rose by 0.8 percent in the fourth quarter, maintaining its pace from the previous months, which was the fastest in a year.

But industrial output growth slowed to 0.7 percent from 0.8 percent, as the strongest manufacturing growth since the third quarter of 2010 proved insufficient to offset falling North Sea oil and gas output.

Construction - which accounts for less than 8 percent of GDP - fell by 0.3 percent, reflecting a weak November.

A survey on Monday showed British households have a growing sense of job security and declining fears that inflation is driving prices higher.

So far, the recovery has been fuelled by consumer spending and an upturn in the housing market, although BoE policymakers over the last week have said they expect business investment to begin making a contribution later in the year.

Critics of the government's economic policies say its attempts to revive the housing market will not help bring about the long-hoped for rebalancing of Britain's economy towards more manufacturing and exports.

The ONS's preliminary estimates of GDP are among the first in the European Union, and are based partly on estimated data. On average, they are revised by 0.1-0.2 percentage points up or down by the time a third estimate is published two months later.

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Bank of England holds cards close to chest on guidance options

 The Bank of England kept investors guessing on Thursday as to whether it might be considering a change to its pledge to keep interest rates on hold as Britain's economic recovery picks up.

It also did not take the unusual step - but one which some investors had considered possible - of issuing a statement to address the speed at which Britain's unemployment rate is falling towards its threshold for considering a rate hike.

"No guidance on guidance yet," Investec economist Philip Shaw said in a note to clients. He said details of discussions among the BoE's policymakers on their options for changing guidance were likely to appear when minutes of this week's meeting are published on January 22.

Britain moved from being a laggard to a leader in terms of growth among the world's biggest economies last year.

Its economy is expanding by more than 3 percent in annualised terms although there are concerns the recovery could prove unsustainable, especially as wage growth remains weak.

The BoE said in August it will not think about raising rates until unemployment falls to 7 percent. Since then unemployment has come down much faster than the Bank expected, raising questions about how long it can hold off on raising rates.

But inflation has also fallen to within a whisker of its 2 percent target, reducing the pressure on the BoE.

After its two-day meeting, the Bank's Monetary Policy Committee kept interest rates at 0.5 percent, as expected by all the economists who took part in a Reuters poll.

It also left its bond-buying programme unchanged at 375 billion pounds.

The turnaround in Britain's economy contrasts with the situation in the euro zone, its main trading partner, where the European Central Bank is expected to use a news conference on Thursday to remind investors it could ease policy further.

The pace of Britain's recovery has helped the pound to strengthen by 5 percent against the euro and 10 percent against the dollar since the middle of last year.

Sterling strengthened briefly against the dollar after the MPC's announcement of no change in policy. British government bond prices rose slightly.

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