Jobless rate falls to within whisker of Bank of England's forward guidance threshold for considering interest rate rise
Britain's unemployment rate has fallen more sharply than expected, to 7.1%, leaving it only just above the 7% level at which the Bank of England has said it will consider raising interest rates from their record low of 0.5%.
The shock fall in the jobless rate in the three months to November was far bigger than economists had forecast, with most expecting it to edge lower to 7.3%. It compares with 7.4% in the three months to October.
The figure piles further pressure on Bank of England governor Mark Carney to clarify his "forward guidance" policy in interest rates. Carney announced last year that the Bank would consider a rate rise once the unemployment fell to 7%. Interest rates have been at 0.5% since March 2009.
When the governor first revealed his forward guidance plan last summer, the Bank was not expecting the rate to drop to 7% until 2016. Since then, the Bank has updated its view, but its most recent forecast suggested the rate would not be reached until the second half of 2015.
That forecast now looks wildly out of date, and Carney can expect some tough questions when he presents the Bank's updated forecast when the February inflation report is published next month.
James Knightley, economist at ING, said: "There is the clear threat that the 7% threshold is breached in the next month or two and with GDP in our view likely to hit 3% this year the probability of an interest rate rise in 2014 is increasing. "However, wage pressures remain non-existent and with inflation looking as though it will be well behaved this year the BoE will likely continue to play down the prospect of actual policy tightening until they think this situation is changing."
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