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U.K. Jobless Rate Falls To 7.1%; BoE Sees No Immediate Need To Hike Rate

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The U.K. unemployment rate fell rapidly to the level close to the central bank's 7 percent threshold for an interest rate hike. But policymakers of the Bank of England said there is no immediate need to raise the interest rate, even if the threshold is reached.

The jobless rate dropped more-than-expected to 7.1 percent for the September to November period, just a tad above the BoE's threshold, figures published by the Office for National Statistics showed Tuesday.

The rate was below the 7.3 percent forecast by economists and the 7.7 percent posted during the June-August quarter. This was also the lowest rate ever recorded since the December to February period of 2009.

According to the minutes of the BoE, policymakers were unanimous in the decision to hold the interest rate and quantitative easing at the meeting held on January 8 and 9.

The nine-member Monetary Policy Committee voted to retain the 0.50 percent record low interest rate and quantitative easing at GBP 375 billion.

With unemployment remaining above 7 percent, the MPC's policy guidance remained in place and no member thought it appropriate to tighten, or to loosen, the stance at the current juncture.

Members assessed that there is no immediate need to raise Bank Rate even if the 7 percent unemployment threshold were to be reached in the near future. "When the time did come to raise Bank Rate, it would be appropriate to do so only gradually," the minutes said.

Samuel Tombs, a U.K. economist at Capital Economics, said there is a strong chance that the MPC will alter its forward guidance alongside next month's Inflation Report in order to provide the recovery with more support.

Yesterday, the International Monetary Fund raised this year's U.K. growth forecast to 2.4 percent from 1.8 percent predicted earlier. The outlook for 2015 was revised up to 2.2 percent from 2 percent.

If the BoE really wants to solidify its message that interest rates are not going to rise anytime soon, it may seriously consider lowering the unemployment rate threshold to 6.5 percent, said IHS Global Insight's Chief U.K. Economist Howard Archer.

The ONS today said the claimant count or the number of persons seeking jobless benefits declined by 24,000 month-on-month to 1.25 million in December. This was the lowest level since January 2009.

The decline was less steeper than the expected fall of 32,000 claimants. The claimant count rate dropped to 3.7 percent in December from 3.8 percent in November. This was the lowest since December 2008.

There were 30.15 million employed during September to November, up 280,000 from the June to August period. The increase was the largest on record.

Total pay and regular pay both increased 0.9 percent each in the September-November period compared with the same period last year.

According to the Bank of England Agents' summary of business conditions, the annual growth in labor costs per employee edged higher, though remained moderate. The summary of monthly reports were compiled between late November 2013 and late December 2013.

Another report from the ONS showed that the budget deficit narrowed by GBP 2.1 billion from the previous year to GBP 12.1 billion in December.

For the financial year to date 2013/14, public sector net borrowing excluding temporary effects of financial interventions and also excluding the effects of the transfer of the Royal Mail Pension Plan and the transfers from the BoE Asset Purchase Facility Fund was GBP 96.1 billion.

If current trends were continued, the underlying PSNBR would come in at GBP 109.4 billion in 2013/14 which is modestly below the revised target of GBP 111.1 billion, said Howard Archer.

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