Jobs growth, BoE split put UK stimulus in doubt

LONDON: Bank of England policymakers were split this month over the need to boost the economy further while the number of people claiming jobless benefit fell unexpectedly last month, casting doubt on another round of stimulus.
Yetsreday’s labor market data, which also showed a record number of Britons in work in August, will come as a relief to the government, which is under pressure to ease its austerity drive in order to support the struggling economy.
Meanwhile, minutes of the central bank’s October policy meeting showed that while the nine members of its Monetary Policy Committee voted unanimously to maintain the quantitative easing asset purchases as is there were differences over the future.
The bank kept QE at a total of 375 billion pounds and interest rates at their record low of 0.5 percent.
These purchases will be completed by the time the MPC meets next month and the minutes indicated that the policymakers disagreed on whether more will be needed.
“There were some differences of view between members about the outlook and the likelihood that further easing in policy would be required,” the minutes said.
For one, the labor market data from the Office for National Statistics painted a surprisingly strong picture.
The number of people in work rose to 29.59 million in the three months to August — the highest since records began in 1971. The ONS said the labor market improvement may have been helped by hiring for the London Olympics and Paralympics.
“Employment is up 212,000 — that’s a success; unemployment down 50,000 this quarter — that’s a success; the claimant count down 4,000 — that’s a success,” Prime Minister David Cameron told parliament.
Sterling rose against the dollar and British government bonds extended losses when the labor figures and the BoE minutes were published, as investors reassessed the chances of more quantitative easing asset purchases in November.
“I think they’ll (the BoE) sit on their hands in November. I think they are putting more emphasis on the Funding for Lending Scheme and letting that do its thing,” said Scotiabank economist Alan Clarke.
The BoE’s Funding for Lending Scheme, which offers banks cheap funding if they maintain or increase lending, was showing some “encouraging” signs of helping the mortgage market, but could take longer to benefit businesses, the minutes said.
Britain’s economy has not fully recovered the output lost during a 2008-09 slump and slipped back into recession at the end of last year. Paradoxically, jobless numbers have fallen as the economy has kept creating jobs.
Unemployment fell to 7.9 percent in August, below even the most optimistic economists’ forecasts, the ONS data showed.
“This is another set of impressively resilient and healthy labor market data which gives a lift to recovery hopes,” said Howard Archer, economist at IHS Global Insight.
Most economists polled by Reuters earlier this month expected the central bank to extend its gilt purchases once the current 50 billion pound round is completed and policymakers have new growth and inflation forecasts in November.
But BoE chief economist Spencer Dale and external MPC member Ben Broadbent both opposed the last expansion of asset purchases in July, and last week another external member, Martin Weale, also expressed skepticism about further purchases.
October’s minutes also omitted a key phrase from the previous month’s minutes which said that policymakers “felt that additional stimulus was more likely than not to be needed.”
Some policymakers have also voiced doubts about the effectiveness of more asset purchases.
Britain probably posted some growth in the third quarter, exiting recession, but weak business surveys have stoked fears of a relapse as the austerity drive and the euro zone debt crisis continue to weigh on the economy.
“The euro zone crisis is the elephant in Britain’s economic room. The scope for a UK recovery will remain precarious until the euro recovery takes root,” Andrew Tyrie, who chairs parliament’s influential Treasury Committee, told a conference.
A survey conducted by the BoE’s regional representatives showed that manufacturing production slowed last month as export demand weakened, and construction output fell. Firms scaled back investment plans and pointed to little job creation ahead.
The MPC said that the expected pick-up in growth was taking longer than expected to materialize.
Inflation — which fell back to a near three-year low of 2.2 percent in September — may rise in the short term due to higher energy, utility and food prices, but was likely to stay close to its 2 percent target, the MPC said.