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MENAFN - AFP - 11/09/2013

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(MENAFN - AFP) Britain's unemployment rate fell unexpectedly in July to the lowest point since late 2012, official data showed Wednesday, but the government warned against over-optimism amid ongoing cuts to state spending.

Unemployment fell to 7.7 percent in the three months to July from 7.8 percent in the three months to June, the Office for National Statistics said in a statement.

That marked the lowest level since the three months to November 2012, adding to recent evidence that Britain was steadily recovering from a long-lasting recession. Market expectations had been for no change.

"Of course it's welcome when unemployment falls but we have got a long way to go," Prime Minister David Cameron said during his weekly question-and-answer session in parliament.

Cameron spoke two days after finance minister George Osborne insisted that recent economic data have vindicated his austerity measures and warned that any backtracking could jeopardise the recovery.

Cameron and Osborne's Conservative party head a coalition government which also comprises the Liberal Democrats.

Business Secretary Vince Cable, himself a member of the Lib Dems, meanwhile used a speech Wednesday to warn over the dangers of "complacency" regarding the country's economic recovery.

"We can't rest on our laurels," Cable told business leaders at a conference at Warwick University, central England.

"The kind of growth we want won't simply emerge of its own volition. In fact, I see a number of dangers. One is complacency, generated by a few quarters of good economic data."

Britain's gross domestic product (GDP) grew by 0.7 percent in the second quarter, upwardly revised data showed last month. Analysts said that the latest unemployment data have helped to confirm Britain's steady recovery.

"The latest labour market data are healthy across the board and helpful to future growth prospects," said Howard Archer, chief UK economist at the IHS Global Insight research group.

"However, underlying earnings growth remains muted."

Analysts were divided on whether the drop in unemployment would force the Bank of England (BoE) to increase record-low interest rates sooner than envisaged.

The benchmark level is being closely watched by markets after the Bank of England recently said it would consider raising its main interest rate once unemployment reached 7.0 percent.

"We expect it to fall to 7.0 percent around the third quarter of 2015," said Archer.

"Consequently, we suspect that the Bank of England could well start to raise interest rates towards the end of 2015."

But Katie Evans, economist at the Centre for Economics and Business Research, said rates would likely rise only in 2016, in line with the BoE's own expectations.

"Although today's data suggest a movement in the right direction, the labour market remains lacklustre. The number of people who worked part-time because they could not find a full-time job has more than doubled over the five years since the crisis, to 1.45 million," she added.

The Bank of England last month announced a major policy shift, as new governor Mark Carney provided clear guidance on when the BoE could be expected to raise record-low borrowing costs.

The British central bank has said it does not plan to raise its key interest rate from its current level of 0.5 percent at least until Britain's unemployment rate falls to seven percent -- providing markets with so-called forward guidance as adopted by the US Federal Reserve.

While the British central bank is forecasting that unemployment will hit a level of 7.0 percent only in 2016, as further deep cuts to state jobs offset workforce growth in the private sector, financial markets believe the BoE will have to raise interest rates sooner.

The British pound rallied following Wednesday's jobs data, a sign that traders believe rates will rise sooner than 2016.

Sterling struck 83.83 pence against the euro -- the highest level since January 23 -- and hit a seven-month peak against the greenback at 1.5287.


 






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