Britain's economic recovery won further traction Wednesday as official data revealed a faster-than-expected drop in unemployment alongside a reduction of the country's deficit.
The drop in unemployment to 7.1 percent, the lowest level in almost five years, increased the prospect of higher British interest rates from a record-low level before the end of 2014, according to analysts.
The data meanwhile further boosted Prime Minister David Cameron's coalition government ahead of next year's general election.
"The biggest quarterly increase in employment on record. More jobs means more security, peace of mind and opportunity for the British people," Cameron said on Twitter.
The Office for National Statistics (ONS) revealed that unemployment in the three months to the end of November fell from a rate of 7.4 percent in the quarter through to the end of October.
But wage growth remained muted at 0.9 percent in the three months to November, helping to keep a lid on inflation and in turn a need to raise interest rates.
The ONS added that British state borrowing fell sharply last month, as stronger economic growth resulted in record tax revenues.
Public sector net borrowing, the government's preferred measure of the deficit, slid to £12.1 billion ($20 billion, 14.8 billion euros) in December, compared with £14.2 billion in the same month of 2012.
Unemployment close to central bank's threshold
The Bank of England, under governor Mark Carney, has stated that it will consider raising its key interest rate from a record-low 0.50 percent once the unemployment rate falls to seven percent, which stands just under the current level.
On Wednesday, the BoE said that its policymakers had voted unanimously two weeks ago to maintain its main interest rate at 0.50 percent and to keep the level of stimulus pumping around the economy at £375 billion.
Minutes of its January policy meeting noted that "the unemployment rate was now likely to reach the seven percent threshold materially earlier than previously had been expected" by the bank under a so-called "forward-guidance" policy.
But the central bank also cautioned that it saw "no immediate need to raise Bank Rate even if the seven percent unemployment threshold were to be reached in the near future".
Its policymakers noted that "it was likely that the headwinds to growth associated with the aftermath of the financial crisis would persist for some time yet and that inflationary pressures would remain contained.
"Consequently when the time did come to raise Bank Rate, it would be appropriate to do so only gradually," the minutes added.
Following the unemployment data, Citi bank said it now expected a rate rise before the end of 2014.
"With high economic growth, the rapid drop in unemployment and less likelihood that guidance will be reset with a lower threshold, we are advancing our forecast for the first UK rate hike from the second quarter of 2015 to the fourth quarter of 2014," it said in a note to clients.
On Tuesday, the International Monetary Fund said it expected Britain's economy to grow by 2.4 percent this year, up from an estimate of 1.9 percent given in October.
The IMF now expects Britain to be among the fastest growing of the world's advanced economies during 2014, handing a major boost to British finance minister George Osborne's deficit-slashing austerity policies.
Britain is a member of the European Union but not the single-currency eurozone.
Britain’s economic recovery won further traction Wednesday as official data revealed a faster-than-expected drop in unemployment alongside a reduction of the country’s deficit.
The drop in unemployment to 7.1 percent, the lowest level in almost five years, increased the prospect of higher British interest rates from a record-low level before the end of 2014, according to analysts.
The data meanwhile further boosted Prime Minister David Cameron’s coalition government ahead of next year’s general election.
“The biggest quarterly increase in employment on record. More jobs means more security, peace of mind and opportunity for the British people,” Cameron said on Twitter.
The Office for National Statistics (ONS) revealed that unemployment in the three months to the end of November fell from a rate of 7.4 percent in the quarter through to the end of October.
But wage growth remained muted at 0.9 percent in the three months to November, helping to keep a lid on inflation and in turn a need to raise interest rates.
The ONS added that British state borrowing fell sharply last month, as stronger economic growth resulted in record tax revenues.
Public sector net borrowing, the government’s preferred measure of the deficit, slid to £12.1 billion ($20 billion, 14.8 billion euros) in December, compared with £14.2 billion in the same month of 2012.
Unemployment close to central bank’s threshold
The Bank of England, under governor Mark Carney, has stated that it will consider raising its key interest rate from a record-low 0.50 percent once the unemployment rate falls to seven percent, which stands just under the current level.
On Wednesday, the BoE said that its policymakers had voted unanimously two weeks ago to maintain its main interest rate at 0.50 percent and to keep the level of stimulus pumping around the economy at £375 billion.
Minutes of its January policy meeting noted that “the unemployment rate was now likely to reach the seven percent threshold materially earlier than previously had been expected” by the bank under a so-called “forward-guidance” policy.
But the central bank also cautioned that it saw “no immediate need to raise Bank Rate even if the seven percent unemployment threshold were to be reached in the near future”.
Its policymakers noted that “it was likely that the headwinds to growth associated with the aftermath of the financial crisis would persist for some time yet and that inflationary pressures would remain contained.
“Consequently when the time did come to raise Bank Rate, it would be appropriate to do so only gradually,” the minutes added.
Following the unemployment data, Citi bank said it now expected a rate rise before the end of 2014.
“With high economic growth, the rapid drop in unemployment and less likelihood that guidance will be reset with a lower threshold, we are advancing our forecast for the first UK rate hike from the second quarter of 2015 to the fourth quarter of 2014,” it said in a note to clients.
On Tuesday, the International Monetary Fund said it expected Britain’s economy to grow by 2.4 percent this year, up from an estimate of 1.9 percent given in October.
The IMF now expects Britain to be among the fastest growing of the world’s advanced economies during 2014, handing a major boost to British finance minister George Osborne’s deficit-slashing austerity policies.
Britain is a member of the European Union but not the single-currency eurozone.
