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With unemployment at a five-year low, is an interest rate rise on the horizon?

POSTED: 25th April 2014
IN: General
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Unemployment is continuing to fall in the UK, with the number of people looking for work down to 2.24 million in the three months to February 2014, according to the latest official figures.

Unemployment is continuing to fall in the UK, with the number of people looking for work down to 2.24 million in the three months to February 2014, according to the latest official figures.undefined

This is the lowest level in five years and represents a jobless rate of 6.9 per cent.

The number of people out of work fell by 77,000 from the September to November 2013 period and was 320,000 lower than a year earlier.

At 30.39 million, employment increased by 239,000 from the previous quarter and was up 691,000 year on year.

The figures were widely welcomed, with employment minister Esther McVey saying: "More young people are in work, more women are in work, wages are going up, and more and more businesses are hiring - and it's a credit to them that Britain is working again."

James Sproule, chief economist at the Institute of Directors, said the UK jobs market has been "the outstanding success story of the last few years".

The decline in unemployment is clearly good news, but it may be a slight cause for concern among homeowners who follow financial news.

Last August, the Bank of England (BoE) said it would not consider raising interest rates until the jobless rate was below seven per cent, a point we have now reached.

The prospect of an interest rate rise could worry mortgage borrowers whose finances are already stretched, but there have been some words of reassurance from industry commentators.

Mr Sproule said: "While the headline unemployment figure is now below the trigger point set by the Bank of England for reviewing interest rate policy, there appears to be sufficient slack in the labour market to suggest an imminent rise in interest rates remains unlikely."

Howard Archer, chief UK and European economist at IHS Global Insight echoed this view, referring to the BoE's repeated assertions that an unemployment rate below seven per cent will not result in an automatic rate hike.

Paul Broadhead, head of mortgage policy at the Building Societies Association, recently acknowledged that consumers are concerned about a rise in rates, but reassured borrowers that any change will be implemented gradually.

The consensus seems to be that an increase will not be announced until late 2014 at the earliest.

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