Tuesday, November 16, 2021
Labor market continues to recover
Will the UK central bank raise key interest rates soon?
The British central bank recently left the key interest rate at a record low of 0.1 percent. At the same time, however, it signals that an increase may be necessary with a view to the recovery on the labor market in “the coming months”. The financial markets are already counting on it.
The British economy added jobs in October, giving the monetary authorities in London arguments for a possible rate hike. The number of employees rose by 160,000 to 29.3 million, according to the data published by the ONS national statistics office.
The British central bank had recently left the key interest rate at a record low of 0.1 percent, but at the same time signaled that an increase may be necessary “in the coming months” in view of the increased inflation.
The Bank of England (BoE) pointed out that it wanted to sound out the situation on the labor market after the expired short-time work regulation before tightening monetary policy. The regulation, which is similar to the German one, expired on September 30th. The statistical office estimates that around 1.1 million employees have recently made use of it.
As the ONS also announced, the unemployment rate fell to 4.3 percent in the months of July to September, which is more than expected by experts. Experts had a value of 4.4 percent on the slip after the quota in the months of June to August had been 4.5 percent.
Financial markets firmly expect the key interest rate to rise in December
Mike Owens, an expert at the fintech bank Saxo Markets, sees this as paving the way for monetary tightening: “If the central bank wanted to see a strong labor market before a rate hike, it has now officially received the green light for a decision in December.” However, Fed Chairman Andrew Bailey recently pointed out that there are still two labor market reports to be made before the decision is made in December. The BoE will take the interest rate decision on December 16, the November job report will be published on December 14.
Bailey had recently said at a hearing in Parliament that he was worried about high inflation. He was “very concerned” about it. Nobody should doubt that the central bank will oppose it. In the financial markets, it is now firmly expected that the key interest rate will rise to 0.25 percent in December.
At 3.1 percent, the rate of inflation has surpassed the central bank’s target, which is aiming for a value of two percent. In the consumer price data for October due on Wednesday, experts expect an increase of 3.9 percent. According to the BoE forecast, inflation should peak in the second quarter of 2022 at 4.8 percent.