Bank sees 'no immediate need' for rate rise despite unemployment fall

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The Bank of England has again moved to temper expectations of an early rate rise, despite the UK unemployment rate dropping to close to the crucial 7% mark this morning.

The unemployment rate fell by more than expected this morning, from 7.4% to 7.1% in the three months to November, prompting a rise in gilt yields.

Data from Tradeweb shows the yield on 10-year gilts rose by 2.84% to 2.9% following the release of the data at 9:30am.

The Bank of England has previously said it will consider increasing interest rates when the unemployment rate falls to 7%, a move which would be negative for bondholders.

The faster-than-expected fall in the unemployment rate has prompted market participants to anticipate a rise in interest rates earlier than previously expected - possibly as soon as this year.

However, minutes of the latest Monetary Policy Committee meeting, also released at 9:30 this morning, revealed the Bank sees "no immediate need" to raise rates once the 7% threshold is reached.

This message calmed investors and yields on 10-year gilts eventually fell back to 2.890% by 10:30am.

Adrian Lowcock, senior investment manager at Hargreaves Lansdown, said: "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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