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Forward guidance questioned as unemployment drops to lowest level since 2009

by Eleanor Lawrie on Dec 18, 2013 at 16:08

UK joblessness fell to 7.4% in the three months to October, the lowest level since April 2009 and not far off the level that could prompt a rise in interest rates.

In the third quarter, 250,000 more people aged over 16 were employed than in the three months to July, according to data from the Office for National Statistics.

The Bank of England's Monetary Policy Committee indicated as part of its forward guidance policy that interest rates were likely to rise when the indicator fell below 7%, which it forecast would not happen until late 2016.

'The chance of the threshold being reached next year has certainly grown,' Samuel Tombs, UK economist at Capital Economics, said.

But he added that in reality the Bank is unlikely to raise rates when unemployment falls to this critical level.

'Even if the economic recovery continues to bring the unemployment rate down rapidly, we continue to think that the subdued inflation outlook will enable official interest rates to remain on hold for another couple of years,' he said.

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