Bank of England dissent and robust jobs data fuel interest rate doubts

Robust jobs data and unexpected dissent from a Bank of England policymaker created fresh doubts yesterday about how long the central bank will keep its vow to hold rates at their current record low.

New governor Mark Carney pledged last week to keep rates low until unemployment hits 7 per cent – something he forecast would take three years – in a new approach for the central bank that is strongly backed by British chancellor George Osborne.

But minutes of the bank’s August policy meeting revealed one official thought the new guidance’s safeguards against excess inflation were too weak. Official data, meanwhile, showed a big fall in people claiming jobless benefits.

Martin Weale’s decision to vote against Carney’s flagship policy was not the only sign of disagreement on the nine- member monetary policy committee. Some members said a recent rise in bond yields – which Carney’s “forward guidance” pledge is partly designed to counter – may be justified by economic fundamentals. Others said there was likely to be a case for more asset purchases in future.

Britain’s economy is gathering strength and looks set to build on its 0.6 per cent growth recorded in the second quarter of 2013. Employers have said they are hiring at the fastest pace since 2007, and yesterday’s labour market data confirmed this.

Although Britain’s unemployment rate held steady at 7.8 per cent in June, a sharp fall in jobless benefit claims in July pointed to a strengthening labour market. The Office for National Statistics said the number of people claiming jobless benefit fell by 29,200 last month – almost twice the drop analysts had forecast.

The claimant count has now fallen for nine consecutive months, taking the rate to its lowest in more than four years.– (Reuters)