Rate rise is ruled out for now

Jane Padgham12 April 2012

THE prospect of higher interest rates receded further today following news of an unexpected rise in unemployment and figures showing wage growth remains subdued.

Also pointing to unchanged rates for the foreseeable future were the minutes of the latest Bank of England monetary policy committee meeting, which revealed that only arch-hawk Mervyn King, the Bank's Deputy Governor, voted for the cost of borrowing to be raised this month.

The news, combined with yesterday's inflation figures showing price pressures are at their lowest since records began in 1975, left many City economists predicting rates will stay at a 38-year low of 4% until October or November.

Sterling tumbled to $1.5650, down almost a cent on the day. The euro was down half a cent at $1.0065, or 64.30p versus sterling. The FTSE 100 index jumped 126.3 points to 4148.2. Claimant count unemployment rose 1300 to 952,400 in June against expectations of a 2000 fall, although the jobless rate remained steady at 3.2%.

On the Government-preferred International Labour Organisation-measure, which includes all people seeking work rather than just those claiming benefits, unemployment rose 5200 to 1.572 million in the three months to May.

Despite the job losses, average earnings growth rose to 3.8% in the three months to May from 3.3% in the previous three months.

The latest figure was the highest since last November but still well below the 4.5% the MPC believes is the trigger-point for economy-wide inflation.

Public sector pay growth, which has been creeping higher in recent months, fell from 4.1% to 3.8%, its lowest since March 2001.

Meanwhile, a dovish set of MPC meeting minutes revealed that, King apart, the majority of the nine-strong committee felt that recent stock market falls and concern over the economic recovery argued for unchanged rates.

'It was not yet necessary to raise interest rates, and there was a possibility that an increase-in interest rates at this point could have an unusually sharp impact on business and consumer confidence,' the minutes said.

Some members felt the arguments for unchanged rates were stronger this month than last.

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