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Unemployment falls to 7.1% but Bank sees ‘no immediate need’ to raise rates

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The unemployment rate has dropped to 7.1%, according to the Office for National Statistics (ONS).

This takes the rate to just above the 7% trigger point at which the Bank of England has said it will consider increasing interest rates.

The number of people out of work fell by 167,000 to 2.32 million in the three months to November 2013, the ONS said.

Total pay and regular pay both rose by 0.9% compared with the same period in 2012.

The number of people claiming Jobseeker’s Allowance fell by 24,000 to 1.25 million in December 2013.

The drop in the number of people out of work was bigger than analysts had expected, raising the possibility that interest rates may rise sooner than previously thought.

However, minutes of the latest Monetary Policy Committee meeting, also released this morning, revealed the Bank sees “no immediate need” to raise rates once the 7% threshold is reached.

Adrian Lowcock of Hargreaves Lansdown said: “The speed of the fall in unemployment has caused markets to anticipate interest rates will rise sooner than [Bank of England Governor] Mark Carney suggested in his forward guidance, possibly as early as the end of 2014.

“We think it is unlikely interest rates will rise this year. Inflation has been falling and therefore there is little pressure to raise interest rates. The economic recovery remains fragile and Carney must be mindful that a rise in interest rates would push up borrowing costs, including mortgage interest payments. Investors should be prepared for interest rates to remain lower, probably into 2015.”

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