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Experts: Bank could lower unemployment target before interest rate hike

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06/01/2014
The Bank of England (BoE) could lower the unemployment target it has said must be reached before it raises interest rates, according to some experts, as jobless figures fall faster than expected.
Experts: Bank could lower unemployment target before interest rate hike

Bank Governor Mark Carney (pictured) has said that he will not raise interest rates above their historic low of 0.5% until unemployment falls to 7%, predicting this level will not be reached until 2016.

But unemployment has been falling sharply – down to a lower than expected 7.4% in October – as the recovery gains traction, meaning the threshold could be hit far sooner.

BoE policymakers will hold their first meeting of the new year this week. While the Bank is not expected to make any changes to its forward guidance policy at this week’s meeting, it could reduce the unemployment target to 6.5% as soon as next month, according to experts, the Daily Mail reports.

Alan Clarke, economist at Scotiabank, said unemployment is “falling like a stone”.
“We think that 7% will be hit in the early months of 2014. As a result, the Bank is likely to modify its forward guidance policy – lowering the threshold to 6.5%- most likely at the February inflation report.”

Brian Hilliard at Société Générale added the threshold could “easily” be reduced below 6.5%.

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