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UK’s unemployment rate falls to 7.6%

UK’s unemployment rate falls to 7.6%

Category: Economy

Updated: 13/11/2013
First Published: 13/11/2013

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During September the UK's rate of unemployment moved closer towards the threshold at which the Bank of England (BoE) said it will consider increasing interest rates.

The measure fell 0.1% to 7.6% during the month, which means it is now 0.6% above the Bank's target rate of 7%.

This new stance that the BoE has decided to take is known as forward guidance, whereby it will link its decision to increase interest rates to specific economic indicators, in this instance the unemployment rate. In August, when it unveiled forward guidance, unemployment was at 7.8%.

Of course, this doesn't necessarily mean that as soon as unemployment drops to 7% interest rates will go up, as the BoE has said its decision will be based on other factors as well, such as inflation and economic growth.

In its latest Inflation Report published today the Bank said: "It is important to remember that the unemployment threshold is a staging post for assessing
policy, not a trigger for an automatic increase in Bank Rate.

"When the threshold is reached, the MPC [Monetary Policy Committee] will set policy to balance the outlook for inflation against the need to provide continued support to the recovery in output and employment."

However, the BoE is now forecasting that unemployment will fall to 7% earlier than when it expected had in August.

In fact, the Bank predicts that there is now a two in five chance that unemployment will drop to 7% by the end of next year, and a three in five chance that it will have done so by the end of 2015.

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