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Analysis

UK unemployment

by Gabriel Stein

Thu 2 Jan 2014

UK unemployment Enlarge Chart loading Image

What the chart shows: The chart shows the three-month moving average of British unemployment as % of the labour force.

Why the chart is important: When the Bank of England introduced its policy of ‘forward guidance’ during the summer, the Bank took a leaf from the Federal Reserve and announced that policy would be guided by unemployment. Bank rate would not rise until the rate of unemployment fell below 7%, a level forecast to be reached in 2016. Already at the time, this was perceived to be a very pessimistic forecast of British economic prospects. Since then, economic activity has repeatedly surprised the Bank on the upside. In the three months to October, unemployment fell to an average of 7.4% from a previous 7.6%. It now looks more than likely that the 7% target will be reached in 2014 – two years ahead of the Bank of England’s original forecast. That does not mean an immediate rise in Bank rate. But it is quite clear that Bank Rate will rise well before 2016.

Chart and comments provided by Stein Brothers (UK) www.steinbrothers.co.uk