UK Jobs Data And BoE Minutes To Guide Interest Rate Outlook

by
Reuters
Britain's unemployment data and Bank of England policy minutes will be under particular scrutiny later on Wednesday for any signs that they may bring pressure on new governor Mark Carney's commitment to low interest rates.

* UK labour market data and BoE minutes due at 0830 GMT

* Data will be first since BoE tied rates to unemployment

* Economists see unemployment flat, clear backing for Carney

Britain's unemployment data and Bank of England policy minutes will be under particular scrutiny later on Wednesday for any signs that they may bring pressure on new governor Mark Carney's commitment to low interest rates.

Last week Carney said the BoE would not raise interest rates until unemployment fell to 7 percent, and Wednesday's data and minutes should give some clue on how soon that point will come, and reveal whether all BoE policymakers backed this commitment.

Most economists expect the unemployment rate in the three months to June will hold steady at 7.8 percent, and that the number of unemployment benefit claims in July will drop by 15,000, a slightly slower pace than in June.

But the figures can be hard to predict, despite signs that employers are hiring at the fastest pace since 2007.

Pointing to volatile unofficial monthly figures for the jobless rate in April and May, Deutsche Bank economist George Buckley said unemployment in the second quarter probably picked up to 8.0 percent, bucking a longer-term downward trend.

"This week's number could be worse than expected," he said, adding that in the longer term, he thought the jobless rate would probably hit 7 percent in late 2015, a year earlier than the BoE forecast.

Barclays fixed income strategist Moyeen Islam added that market reaction could be unpredictable, as extrapolating longer-term patterns from the monthly data was difficult.

"There's no discernible trend at all about how quickly unemployment might fall," he said.

BoE policymakers' individual views about the likely pace of decline in unemployment - and the merits of Carney's forward guidance - should become clearer after Wednesday's minutes.

Last month Carney unexpectedly persuaded two dissenting members of the Monetary Policy Committee to ditch their vote for more asset purchases, and this month should reveal whether his more conservative colleagues were comfortable with his long-term commitment to low interest rates.

Individual MPC members are not bound by the BoE's forward guidance if they judge it poses a risk to financial stability, if inflation expectations are getting out of control or if they think inflation in 18-24 months will exceed 2.5 percent.

While it would be a surprise for any MPC member to openly disagree with Carney's flagship policy in its first month, the minutes should show if any policymakers thought the so-called knock-out clauses were close to being breached.