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Will UK jobs fall mean rate rise?

Wednesday, Jan 22, 2014 - 01:46

Jan 22 - Unemployment has fallen again in the UK close to the 7 percent threshold at which the Bank of England will have to review its monetary policy. But as Hayley Platt reports the Bank sees no immediate need to raise interest rates.

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There was good news and bad when the latest jobs numbers were released in the UK. Unemployment was down - which is good - but it's now just a whisker from the figure that could mean an interest rate rise. The Bank of England says it's in no rush to act. But the fact remains - 7% was the threshold and unemployment is now 7.1% Danny Alexander is Treasury Secretary SOUNDBITE (English) DANNY ALEXANDER, CHIEF SECRETARY TO THE TREASURY, SAYING: "Clearly low interest rates, low bond market rates have been good for the UK economy. The Bank of England has been clear that 7 percent is a threshold, not a trigger and they will need to set out for themselves over the medium term. They've been clear that they see monetary policy supporting the economy for some time to come." But sterling jumped and British government bond prices tumbled. Investors clearly believe the Bank of England will have to raise its record low interest rates sooner than it's been signalling. A fall in inflation to the bank's 2% target has helped its case. But Governor Mark Carney's forward guidance policy may soon need amending, says CIBC's Jeremy Stretch. SOUNDBITE (English) Jeremy Stretch, Head of FX Strategy , CICB, saying (English): "Perhaps the bank will look to lower that threshold down to 6.5% to make sure that markets don't foresee or try to price in early hikes which I think would be deemed to be far too preemptive in terms of the recovery process as far as the central bank are concerned." Not everything is rosy in the UK's garden. The recovery so far has also been largely consumer-led, many of the new jobs are part-time and salaries are only rising very slowly. Many see earnings growth as the better gauge of the economy. But if that doesn't strengthen, a small rate rise from the current half a percent has the potential to derail what is still a fragile recovery.

Will UK jobs fall mean rate rise?

Wednesday, Jan 22, 2014 - 01:46

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