Unemployment rate fall sparks interest rate fears

By Michelle Rock

Last August Bank of England governor Mark Carney issued a forward guidance policy in respect of interest rates in an effort to bring some assurance to mortgage borrowers and businesses.

Mr Carney said at the time that interest rates would remain unchanged as long the unemployment rate in the UK remained above 7 per cent. At the time the economic situation was much bleaker, and it was estimated that Mr Carney had effectively assured that interest rates would remain frozen for at least another two years. Less than a year later the rate of unemployment started to drop quicker than anticipated and it has been today confirmed that the average UK rate now stands at 6.9 per cent.

Thankfully, Mr Carney had clarified his previous guidance just last month, saying that the rate of unemployment would not be the only economic indicator that would be considered, and that there would need to be visible improvement in other areas before the interest rate would be changed. Economists began to speculate that the most likely date for a future interest rate increase would Spring 2015 and mortgage borrowers in Northern Ireland and the rest of the UK began to breathe easy again.

The announcement today that unemployment across the UK now stands at 6.9 per cent has however sparked some debate that interest rates might need to increase sooner than thought, despite the previous assurances and speculations. There are concerns that the economy is improving at a much faster rate than envisaged, even in light of positive figures last month, and that the Bank may be called upon to raise interest rates sooner than planned.

Other economists are convinced that interest rates will not be increased this year, pointing in particular to the impact of the economic boom in the South of England on overall UK figures. It is considered that figures on unemployment and wage increases are largely inflated by the staggering recovery in London and the greater London area, and that the overall economy is not quite as strong as some reports would suggest.

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