Unemployment fell by 7,000 to 1.31 million in the three months to the end of November, according to figures from the Office for National Statistics. Meanwhile, employment far outstripped expectations, hitting an all-time high of 76.3 per cent.
The news has thrown uncertainty into the works, as the Bank of England’s Monetary Policy Committee (MPC), which sets the rates, is due to meet next Thursday.
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It had been widely expected to cut the interest rate, but the new data could give members pause for thought, experts said.
“The continued resilience of the labour market increases the chances that the MPC will take a rain-check next week, instead of cutting bank rate immediately,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
Currency traders also seemed to believe the chance of a rate cut is diminished as they pushed the pound up 0.3 per cent to 1.3048 against the dollar.
The decision could now come down to other data, due to be published later this week.
If IHS’s Purchasing Managers’ Index and an industrial trend survey from the Confederation of British Industry do not show that the economy is picking up, it may force the committee’s hand.
A lower interest rate makes it cheaper for people and companies to borrow money, and could stimulate the economy.
However, a rate cut would not be welcomed by business, said Suren Thiru, head of economics at the British Chambers of Commerce.
“More must be done to stimulate growth and productivity. With interest rates near to historical lows, there is little to be gained from further rate cuts. Instead the focus should be on using the upcoming Budget to support firms looking to recruit and grow their business,” said Mr Thiru.
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The chancellor, Sajid Javid, hailed the figures, saying they would make “a real difference to the day-to-day lives of hard-working families”.
Howard Archer, chief economic adviser to the EY Item Club, said the figures were “remarkably strong”, considering the uncertainty around December’s election and Brexit.
“Uncertainties were particularly heightened in November, while data show GDP contracted 0.3 per cent month on month. Even allowing for employment being a lagging indicator and the data being helped by a weak August performance dropping out of the calculation, a jump of 208,000 in the number employed looks remarkable,” he said.
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