UK jobless rate shows surprise increase after Bank of England shifts focus

LONDON Wed Feb 19, 2014 11:42am EST

A man is reflected as he looks into the window of a job centre in central London February 16, 2011. REUTERS/Toby Melville

A man is reflected as he looks into the window of a job centre in central London February 16, 2011.

Credit: Reuters/Toby Melville

LONDON (Reuters) - Britain's jobless rate edged up unexpectedly for the first time in nearly a year, just a week after its previously rapid fall had forced the Bank of England to stress that it was in no rush to raise interest rates.

Last week the BoE demoted the unemployment rate from its central role as a guide on how long to keep interest rates steady, after six months in which joblessness had tumbled far faster than the central bank had forecast.

But official data on Wednesday showed the rate had edged up to 7.2 percent in the three months to December from November's four-year low of 7.1 percent, though it remains well below the third-quarter level of 7.6 percent.

This was its first rise since February 2013 and one which bucked the expectations of economists and the BoE for it to hold within a whisker of the BoE's 7 percent threshold for its previous forward guidance.

The BoE retains its policy of not raising interest rates while unemployment remains above 7 percent, something it originally expected to be the case for three years, but it said last week it would also look at a wider range of data before making a decision to raise rates.

The BoE said these measures included whether people with jobs wanted to work more hours. It added market expectations that rates would rise in the second quarter of next year were consistent with its aim of keeping inflation near its 2 percent target.

Bank of England policymaker Paul Fisher said in a radio interview after the data that he was reluctant to read too much into one number, but that it suggested the pace of labor market recovery might be slowing.

"Basically, we don't think rates need to up until we've used up more of the slack that's in the economy now. That doesn't appear to be any time soon," he said.

Sterling fell and British government bond prices rose to their highest in nearly two weeks after the data, as investors pushed back bets on when the BoE will raise interest rates.

"There is still plenty of spare capacity in the job market. ... (and) the first rise in interest rates still appears to be some way off," said Samuel Tombs, UK economist at Capital Economics.

MINUTES NO GUIDANCE

The more vague nature of current guidance means there is increased interest from economists in policymakers' individual assessments of how much slack there is in the economy to judge when rates might start to rise.

Monetary Policy Committee member David Miles said in an interview on Monday that the 1.0-1.5 percent of GDP estimate of slack published for the first time by the BoE last week was narrower than the range of views on the MPC as a whole.

But to some economists' surprise, minutes of the MPC's February 5-6 meeting published on Wednesday gave no indication of policymakers' differing views on this issue. There was also no detailed discussion or vote on forward guidance, as happened when Governor Mark Carney launched it in August.

"The debate must be going on but it is somewhat stifled in the minutes," said BNP Paribas economist David Tinsley. "There is a sense that the minutes since the new governor have become less informative."

But Fisher said policymakers were free to speak out, when asked if any were secretly pushing for rate rises.

"We're very much united on the general broad outlook for the economy," he told the BBC. "We're very open and transparent about dissent ... and if there was any indication that people wanted to put rates up, you would see that," he added.

Figures aside from the unemployment rate - which is subject to some monthly volatility - suggest that slack in the labor market is continuing to reduce.

The number of people in work in the fourth quarter was 193,000 higher than in the third quarter at 30.146 million, just below the record 30.150 million reached in the three months to November.

The Office for National Statistics said the number of people claiming jobless benefits - a narrower category than those deemed unemployed - fell 27,600 in January, compared with a forecast for a decline of 20,000 in a Reuters poll.

Wages in the three months to December 2013 showed their biggest rise since July, up by 1.1 percent compared with the same period in 2012.

But this is still well below inflation of around 2 percent over the period - and Capital's Tombs said it was unlikely to rise much further - suggesting falling living standards are likely to remain a big issue in the run-up to a national election in 2015.

(Additional reporting by Andy Bruce and Julia Fioretti; Editing by Janet Lawrence)

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