The United Kingdom's unemployment rate has fallen below 7% for the first time in five years. Unemployment fell from 7.2% in the previous quarter to 6.9%. This drop in unemployment puts pressure on the Bank of England to raise its record low .5% interest rate. The plan was to raise the interest rate once unemployment fell below 7%. However, because the unemployment rate fell faster than expected, bank governor Mark Carney broadened the forward guidance policy to include other economic indicators such as wage growth and productivity.
Earnings growth narrowly exceeded inflation for the first time since 2010. Although he's encouraged by the fall in unemployment and wage growth, David Kern, chief economist at the British Chambers of Commerce was skeptical of the high youth unemployment rate of 19.1%.
http://www.washingtonpost.com/business/uk-unemployment-down-to-69-percent/2014/04/16/e74caf30-c546-11e3-b708-471bae3cb10c_story.html
I don't think its the best idea to quickly change interest rate because of how fast the unemployment rate fell. It should be changed after a few more quarters to make sure it was not just a fluke.
ReplyDeleteI agree with increasing the interest rate. Low interest rate is very risky because of liquidity trap. Japan sometimes use zero interest rate policy,and in fact it does help the economy but the polocy is critisized by many Japanese economist.
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