LONDON – The Bank of England is one step closer to raising interest rates next month, analysts said Tuesday after official figures showed that the end of the British government's salary support program for workers during the coronavirus pandemic has not yet led to the feared increase in unemployment.
The Office for National Statistics found that the number of people on payroll surged by 160,000, to 29.3 million, in October, the first full month after the program ended.
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Earlier this month, the Bank of England held back from becoming the first major central bank among leading industrial nations to raise interest rates since the pandemic started. The move to curb soaring consumer prices didn't go through amid concerns over the end of the salary program. Bank rate-setters said they would be closely monitoring upcoming unemployment figures before their next meeting on Dec. 16.
For much of the time the program was in place, the government paid 80% of the salaries of employees unable to work because of lockdown measures. At its peak, it helped support over 11 million people, but with many workers returning to their jobs after pandemic restrictions lifted, that fell to a little more than 1 million at the end of the program.
“Early indications are that the U.K.’s jobs market has remained resilient, with record vacancies and job moves, and withstood the withdrawal of emergency support well,” said Nye Cominetti, senior economist at the Resolution Foundation think tank.
The statistics agency cautioned, however, that it may take a few months to see the full impact of the end of the program because people who lost their jobs at the end of September could still be receiving redundancy pay.
In a separate assessment of the labor market, the statistics agency said the unemployment rate fell again to 4.3% between July and September from 4.5% between June and August. September's rate was the lowest since summer 2020, soon after the start of the shock of the pandemic.
Though that predates the end of the salary program, economists said the Bank of England is now one step nearer to raising its benchmark interest rate from a record low 0.1% at its next monetary policy meeting to combat spiking inflation.
Consumer prices are rising at an annual rate of 3.1% and expected to ratchet higher, possibly to 5%, largely as a result of surging energy prices and widespread issues in the supply chain that's led to an array of shortages across the British economy. Other countries around the world are seeing similar problems.
By their next meeting, the nine rate-setters will be armed with another set of labor market statistics that will include the official unemployment rate in October. If that is a repeat of Tuesday's figures, economists said there are good odds the bank will raise its main interest rate to 0.25%, which would result in higher mortgage payments and more expensive loans.
“If Bank of England Governor Andrew Bailey was serious when he said he was looking at U.K. labor market data for clues as to whether to raise rates, then today’s unemployment data is giving him fewer excuses not to act with a modest rate increase next month,” said Michael Hewson, chief market analyst at CMC Markets.