Interest rates on hold with jobless tally at 30-year low

Interest rates on hold with jobless tally at 30-year low

The Bank of England yesterday adopted a wait-and-see approach to interest rates amid news that a 30-year low in claimant-count unemployment has prompted only a modest increase in pressure for higher wages.

Mervyn King, the Bank's governor, said that higher earnings growth posed the biggest threat to inflation exceeding the government's 2% target and he stressed that the rate-setting monetary policy committee would be watching the labour market "extremely carefully".

But the Bank's quarterly inflation report contained little to make the City concerned that an imminent rate rise was in prospect. With Alan Greenspan dropping strong hints last night that US borrowing costs would continue to rise sterling fell back in response to what was seen as a "dovish" report. Analysts had expected a more aggressive tone after the 0.5 percentage point increase in inflation since the Bank's last report in November, but Mr King said this was balanced by evidence of consumers tightening their belts in recent months.

The governor said that growth was expected to be robust and "somewhat stronger" in the short term than the MPC had expected in November. "A key downside risk to this outlook is the path of consumer spending." Despite healthy growth in incomes, retail sales had fallen in December. The Bank expects consumer spending to grow at 0.7% a quarter - lower than in the boom years of the late 1990s - but Mr King said the outlook was "highly uncertain".

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Ostwald, strategist at Monument Securities, said: "The report is surprisingly dovish. The strongest message is that they'll keep waiting and watching how things develop until after Easter and take it from there."

Data from the Office for National Statistics yesterday showed the number of people out of work and claiming benefit last month fell by 11,000 to 813,200 - the lowest since June 1975. The unemployment rate fell from 2.7% to 2.6%.

On the government's alternative measure - the labour force survey - the number of jobless people rose by 32,000 in the three months ending in December. Employment also rose by 90,000 as the improved chances of finding work encouraged an additional 122,000 to enter the labour market. Earnings growth in the three months to December stood at 4.3% up 0.1 percentage points on the November rate.

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