Job figures for the final quarter of 2013 revealed that the number of people out of work across the UK fell by a considerable amount – 125,000, to be precise. While this is good news for the job market, which until recently had been under a cloud, the actual rate of unemployment unexpectedly rose from 7.1% to 7.2%, causing plenty of confusion in the process.
As unemployment had been decreasing at a low yet steady rate for the past few quarters, for the actual rate to go up came as something of a shock. The latest set of stats from the Office for National Statistics (ONS) nonetheless gave plenty of reason for encouragement among the government and many people in the business community who are looking to recruit once again.
Vacancies on the rise
A major by-product of the resurgent job market is an increase in the number of job vacancies. In actual fact, the number of vacancies in the UK rose by a 15-year record high, perhaps giving job hunters further reason to feel optimistic about their chances of finding paid employment, but this slew of largely good news all that it seems?
With the actual unemployment rate rising, it suggests that the job market isn’t completely in recovery mode. Many of the roles presently being created are part-time, leaving those who cannot do without full-time jobs to accept reduced working hours. As the proportion of part-time to full-time roles is skewed, the money being created for the economy isn’t what it could be.
The recent jobless figures are likely to have a profound impact on interest rates. It was mooted that if unemployment fell below the 7% mark, the Bank of England would be prompted to increase their base rate from 0.5% to 0.75%. As they have stayed at that level for month after month, a change could have a serious impact on the wider economy.
Interest rates may not rise over the course of 2014, but a rise next year could be inevitable, but a lot depends on the state of the job market. About the correlation between unemployment and interest rates, City Index’s Market Strategist Rosemary Okolie said:
“The small rise in unemployment rate to 7.2% was somewhat surprising given that expectations were that the rate would likely stay the same. It does, however, reinforce belief that interest rates are likely to stay put for the time being.”
She then went on to add: “The initial interest rate rise target was an unemployment rate of 7%, however additional variables were added last week, putting at bay an imminent interest rate rise.” The latest unemployment rate reinforces that view.
Unemployment staying as it is could prove to be a boon for more people than first realised. “That will continue to offer benefits to many – home buyers for instance would certainly benefit from continued low interest rates, particularly at a time when many variable rates are starting to rise on expected rate rises in the near term”, added Ms Okolie.