June 14, 2006

Unemployment and inflation haunt interest rates

by Brian Turner

bank-of-england.jpg

Warnings that UK interest rates would likely rise later in the year increased, after figures revealed a surge in both unemployment and inflation figures.

Unemployment increased to 5.3% for April. Ironically, the Office for National Statistics (ONS) also showed an increase in the number of people employed.

The question is how can jobless figures and employment figures both rise at the same time?

While unemployment figures in themselves are unlikely to push at interest rates, inflation concerns will.

The ONS reported that energy prices pushed inflation to 2.2% – above the Bank of England’s 2% target.

However, bearing in mind the Bank of England’s past record of only closing the stable door after the horse has bolted, they are unlikely to step in with a timely increase in August, and may hold off any rate increases until November.

The trouble here is that if they opt to avoid a gentle pressing of the brake sooner, they may simply have to apply more force later.

And that’s more likely to hit the ordinary consumer harder.

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One Response to “Unemployment and inflation haunt interest rates”

  1. Platinax News » Economic growth exceeds forecasts for 2006 on July 1st, 2006 9:48 am

    [...] The news is likely to add to pressures for the Bank of England to look to raise interest rates, especially while inflation is still climbing above targets. [...]

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