LONDON – Official figures show that unemployment in the U.K. fell by 24,000 people between May and July to 2.49 million, raising hopes that the recovery in Europe’s third-largest economy is gathering speed.
The Office for National Statistics also said Wednesday that the country’s unemployment rate declined to 7.7 per cent from 7.8 per cent.
The unemployment rate is being closely watched by the Bank of England and its new governor, Mark Carney. Last month, the bank issued a so-called forward guidance that it won’t consider altering its loose monetary policy — including raising its main interest rate from its record low of 0.5 per cent — until unemployment hit 7 per cent.
Bank officials had said it would probably take three years for unemployment to reach that level, but Wednesday’s figures suggest that may happen sooner than originally thought. The pound spiked higher following the release as investors priced in the possibility that the bank will raise interest rates early.
RBC Capital Markets senior economist James Ashley warned that the Bank’s “forward guidance may prove to be less of an effective anchor than policymakers might have hoped” if the unemployment figures continued their trend in the coming months. However, he added that he thought the pace of further declines months will be modest.
The official figures also showed that the number of people claiming jobseeker’s allowance fell in August by 32,600 to 1.4 million.
Chris Williamson, chief economist at Markit, said the UK labour market may improve at a rate that surprises policymakers.
He said the upturn “bodes well for the sustainability of the wider recovery, as more people in unemployment and rising wages should help boost economic growth further.”