Unemployment and inflation fall

Britain's jobless rate and prices may be falling, but the pound is creeping up.

There was good news for the Bank of England this week as UK unemployment fell to 7.4% in the three months to October, the lowest rate since 2009, and inflation hit a four-year low of 2.1% in November.

However, minutes from the Bank's December meeting revealed that members of the interest-rate setting Monetary Policy Committee (MPC) were starting to worry about the strength of the pound. Sterling is near a five-year high against other major currencies.

What the commentators said

Yet even if unemployment does hit 7% soon, the December meeting minutes suggest the central bank is in no hurry to raise rates. On that front, "the benign inflation outlook will enable the MPC to keep interest rates on hold for a long time yet".

Households will also welcome the slowdown in the rate of inflation rising consumer prices have squeezed spending, said Hugh Pym at BBC News. But they can't count their chickens yet.

One factor leading the drop in the inflation rate was food prices prices were little changed in November, whereas in the same month of last year they rose. But increases in the cost of living are still running ahead of average pay rises, and the November inflation figures do not take into account the latest increases in utility bills.

However, the Bank's concerns about sterling suggest it might be more worried about disinflationary pressures, said Kathleen Brooks of Forex.com. While the Bank shows no sign of intervening yet, if the pound heads towards the 1.70 level against the dollar, it may act a strong pound looks "like the biggest threat to the UK's recovery right now".

Recommended

What's driving the cost of living crisis?
UK Economy

What's driving the cost of living crisis?

Soaring bills, inflation and tax rises are about to squeeze household incomes. And it doesn’t seem that there is much the government can do about it.
15 Jan 2022
What does 2022 hold for UK house prices?
House prices

What does 2022 hold for UK house prices?

UK house prices are rising at their fastest rate since the financial crash of 2008. John Stepek looks at where they might go in the coming year.
7 Jan 2022
How Omicron could trigger stagflation
UK Economy

How Omicron could trigger stagflation

As Omicron runs rife, populations are hunkering down, stifling consumption and growth. But with politicians and central banks reluctant to spend, that…
20 Dec 2021
The Bank of England clearly still doesn't believe inflation is here to stay
Inflation

The Bank of England clearly still doesn't believe inflation is here to stay

The Bank of England surprised markets on Thursday and raised interest rates the first time since 2018 to 0.25%. John Stepek looks at what this means f…
17 Dec 2021

Most Popular

Five unexpected events that could shock the markets in 2022
Stockmarkets

Five unexpected events that could shock the markets in 2022

Forget Covid-19 – it’s the unexpected twists that will rattle markets in 2022, says Matthew Lynn. Here are five possibilities
31 Dec 2021
Which investment trusts performed the best in 2021?
Investment trusts

Which investment trusts performed the best in 2021?

Shivani Khandekar runs through the top ten investment trusts of 2021 – and the worst performing trusts – and looks ahead to 2022.
7 Jan 2022
Interest rates might rise faster than expected – what does that mean for your money?
Global Economy

Interest rates might rise faster than expected – what does that mean for your money?

The idea that the US Federal Reserve could raise interest rates much earlier than anticipated has upset the markets. John Stepek explains why, and wha…
6 Jan 2022