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 interest rates to stay at 0.5% in 2014 - economists

Interest rates in the UK are unlikely to rise this year, according to a snapshot of views of the UK's top economists from the BBC.

An overwhelming majority, 93% of the 28 economists polled, think rates will still be 0.5% at the end of 2014, with more than half predicting the first rise in the second half of 2015.

More than 40% believe unemployment will fall to 7% in 2014, from 7.4% now.

Two-thirds also think wage increases will overtake inflation this year.

Some observers have suggested recent rises in house prices could force the Bank of England to raise rates sometime in 2014, but the majority of economists used by the Treasury and polled by the BBC rejected this view.

Almost 80% think rates will begin to rise in 2015, with 15% saying they will not increase until 2016. Only 7% of those polled think rates will rise in 2014.

The unemployment rate of 7% is significant because this is the level the Bank has said needs to be breached before it considers raising interest rates.

The snapshot suggests there is less certainty in the City about unemployment levels than there is about interest rates.

Although more than 40% think the jobless rate will hit 7% this year, exactly half think that will not be until 2015. Just 8% think it will not be until 2016.

Three respondents actually believe rates will rise before unemployment falls to 7%, which would mean the Bank abandoning its forward guidance on interest rates.

But some economists warn about getting too fixated on the 7% unemployment rate. Kate Barker, a former member of the Monetary Policy Committee, says unemployment could fall and wages could rise, without raising concern over inflation.

"The real question for the economy this year is not just about interest rates. It's actually about what is going to happen to productivity, if we see productivity start to recover we could see wages pick up quite a bit without any damage to inflation - so there are more things to look at other than employment," she said.

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Spain's PM says his country has turned a corner

Mariano Rajoy believes his austerity efforts have made sense and that the country can hope for better things in 2014

More than half its young people are unemployed, a double-dip recession has left the economy 7% smaller than it was five years ago, and debt has soared to nearly 100% of GDP. But Spain's prime minister, Mariano Rajoy, believes his country has turned the corner and can hope for better things in 2014, following its worst economic crisis since the Franco era.

In an interview with the Guardian and partner newspapers from Spain,Italy, France and Germany, Rajoy said the incipient turnaround proved that his austerity efforts "have made sense".

"Last year, the debate was over when Spain would get a bailout, and this year the debate is over when Spain will recover," Rajoy said. He based his optimism on recent unemployment figures which showed that the number of jobseekers had fallen in November for the first time, following positive signs in October.

"Since June 2007, the difference in the unemployment numbers for the corresponding month of the year before has been getting worse and worse and worse. There was a moment, in 2009, when comparing January 2009 and January 2008, one million extra people had registered as unemployed," he said.

"But now, for the first time, in October this year, this trend changed, and there is less unemployment than a year ago. And in November, this trend has been maintained," he added, with around 2,500 fewer people registered as unemployed last month.

"Am I satisfied with this? No. I'm not satisfied … but it is very important, because it shows that there is hope and that this country can and will move forward and that all the efforts that have been put in have made sense," said Rajoy.

Not so long ago, there were real fears that Spain could turn into the next Greece – with far greater implications for the euro and EU economy because of its greater size. The impact of the economic crisis is writ large across the nation: in the empty housing estates that were never completed as the construction boom ground to a halt, the pensioners protesting after their life savings were swallowed up by failing banks, and the vast numbers of young people moving abroad to find work.

But Rajoy thinks that the country has finally turned the corner, highlighting Spain's export industry, which has seen shipments abroad increase steadily over the course of the past year. Spain's powerful car industry is getting back on track, and foreign investors are returning, bringing with them the hope that the country can emerge from its recession.

Rajoy has been criticised for imposing strict austerity measures on Spain, which he argues have brought stability to a country that last year came close to a national bailout, but have seen unemployment spiral, particularly among the young, and deep cuts made to public services.

"It's evident that today there are far fewer people working than five years ago, that is to say that since 2008 things have not gone well in terms of employment. Logically, these people are experiencing difficult times, but it's also true that in Spain there is a very important safety net, namely public services, unemployment benefit … which have allowed people to attain a dignified standard of living," said Rajoy. He spoke of his dislike of raising taxes, but said that he had tried to be as fair as possible in doing so. "It's true that times of crisis generate great difficulties, but this crisis has generated problems for everyone," he said.

Many are worried about the kind of Spain that will emerge from the recession, in a country with one of the biggest wealth gaps in Europe, with the rich getting richer while the working and middle classes are left with rising debts, fewer public services, reduced salaries and more precarious employment.

Rajoy's government carried out labour market reforms in 2012 that made it easier for companies to fire staff, and to bring in more part-time contracts, and the prime minister said there were plans to introduce further such changes. But critics say these reforms fail to achieve what they set out to, namely to create jobs.

Rajoy defended the reforms, saying they had helped to stabilise employment. "In difficult times, it is better to go for lower salaries and to maintain the highest number of people in work," he said. "I would prefer full-time contacts, of course … but short-term contracts can help people out."

Not everyone is as hopeful as the prime minister. A report from PricewaterhouseCoopers last week suggested that Spain's economy would not recover for two decades, and would continue to experience high levels of unemployment throughout that time.

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UK unemployment rate falls to 7.7%

Closely watched indicator takes tentative step towards 7% that could trigger rise in interest rates from Bank of England

Britain's unemployment rate has fallen to 7.7%, in the first tentative step towards the 7% target Bank of England governor Mark Carney says may signal an economy strong enough to withstand a rise ininterest rates.

The jobless rate has become a closely watched indicator in the City since the Bank's monetary policy committee introduced its policy of forward guidance, promising to leave borrowing costs on hold at their record low of 0.5% at least until unemployment falls to 7%.

Unemployment on the broad International Labour Organisation measure tracked by the Bank stood at 2.49 million from May to July, down by 24,000 from three months earlier, according to the Office for National Statistics (ONS).

That took the unemployment rate to 7.7%, from 7.8% over the previous three-month period, driven by a larger-than-expected 80,000 increase in employment.

On the more timely claimant count measure, which just includes people receiving out-of-work benefits, unemployment also fell, by 32,600 in August to 1.4m.

Sterling surged to a seven-month high against both the euro and the dollar after the news, as investors continued to bet on a stronger recovery than the MPC expects. "Markets are clearly ignoring Carney's 'low rates for longer' pledge and driving sterling higher in currency markets," said Nawaz Ali, market analyst at Western Union.

Carney used his first set-piece speech as governor to set out the reasons why he doesn't expect unemployment to fall sharply over the next two years; and stress that the 7% threshold was a "staging post", which need not trigger an automatic rate rise.

Chris Williamson, chief economist at data provider Markit, said: "The upturn in the labour market bodes well for the sustainability of the wider recovery, as more people in employment and rising wages should help boost economic growth further. The improvement also increases the possibility that unemployment could fall faster than the Bank of England expects, meaning an earlier hike in interest rates than 2016, as currently envisaged under the Bank's 'forward guidance'."

There were 334,000 new jobs created in the economy between June and a year earlier, the ONS said – the latest period for which figures are available – with the largest increase, of 117,000, coming in health and social work, within the private sector. With the housing market starting to show signs of life, there was a 77,000 rise in the number of people employed in "real estate activities".

Despite the improving picture, there was also evidence in the detail of the figures that conditions in the labour market remain tough for many.

Average pay rose at an annual rate of just 1%, or 1.1% including bonuses – well below the 2.8% rate of inflation – suggesting that living standards are still being squeezed.

The ONS also highlighted the fact that much of the increase in employment – almost all of it, for women – has been in part-time work, in many cases taken up by employees who would prefer a full-time job if they could find one.

Almost a third of men, and 13.5% of women, in part-time work or self-employment would prefer to be in a full-time role, according to the ONS.

Long-term unemployment has also remained stubbornly high: while overall unemployment has fallen by 105,000 over the past 12 months, the number of people unemployed for more than a year is little changed, at just below 900,000.

Young people are also failing to feel the benefit of the upturn, with youth unemployment 9,000 higher in May to July than three months earlier, at 960,000.

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

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