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Bruce Banner

Unemployment Rate Falls To 7.7% - Interest Rate Rises Soon?

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Sky News reporting that due to unemployment figures heading towards the magic 7%, we could see interest rate rises in the next few months.

Sterling sharply up.

Edited by Bruce Banner

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They'd rather encourage a new flood of immigration than raise rates.

What would the unemployment rate be without the net immigration since 1997?

Lower........but we would miss out on the marvelous multiculturalism that enriches our society.

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Problem is the unemployment figure is all another work of fiction like inflation.

I was with a friend last night who is on the over 50 scrap heap in London and he keeps getting sent on really stupid 3 or more week courses which keeps him off the figures. This is but one of many ways its all fudged.

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Mark Carney never said rates would increase if unemployment fell to 7%, he simply said 7% would be the trigger to consider the situation. Furthermore he also said the market expectations on rate rises were "way off".

It would take sub 7% unemployment plus rising inflation before there would be any movement on base rates, and even then any move would be tiny.

I don't disagree that interest rates will move up, but I'm convinced it will be an extremely slow and drawn out affair. Taking a long term historical view it now appears that the high interest rates of the 70's and 80's were the aberration, and the new normal is low interest rates and relatively low inflation.

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I really can't see interest rates going anywhere even if unemployment hits 7%, they'll find some other excuse as to why the base rate can't go up.

One day......when we are least expecting it.....the markets will buck em.

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I really can't see interest rates going anywhere even if unemployment hits 7%, they'll find some other excuse as to why the base rate can't go up.

Yes, it will never hit 7% as they will just adjust the calculation to make it 7.1%

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I really can't see interest rates going anywhere even if unemployment hits 7%, they'll find some other excuse as to why the base rate can't go up.

We may not be a leader...but sometimes we will be forced to follow. ;)

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Most of the crimes which disturb the internal peace of society are produced by the restraints which the necessary, but unequal, laws of property have imposed on the appetites of mankind, by confining to a few the possession of those objects that are coveted by many. E Gibbon. Decline and Fall 1897

Even by the standards of the 2nd century Roman Empire, the unelected powers representing the vested interests of the property owners have presided over an unprecedented and draconian re-alignment of public policy that has left much of the population without hope, and in many cases under dire threat of homelessness. These measures have been taken in order to protect the paper value of the investments of the few, many of whom are themselves part of the policy making clique. In the 50 years I have spent on this planet (thankfully most of it spent outside the UK) I cannot recall any period more marked by a malicious exercise of authority against the poor for the benefit of the rich. That much of this damage was inflicted by a government calling itself socialist, and now (partly)liberal just heaps irony on top of tragedy.

In the end the policy of artificially inflating the price of housing will fail. It is every bit as evil as a government deliberately setting out a policy to benefit those who hoard basic foods, whilst deliberately increasing the prices.

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Taking a long term historical view it now appears that the high interest rates of the 70's and 80's were the aberration, and the new normal is low interest rates and relatively low inflation.

You are Anatole Kaletsky circa 2006 and I claim my year's free subscription to The Times.

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You fell for it. You fell for their chosen measure. Are you happy that the main costs in your life - a dwelling, a pension have risen so much and it doesn't touch the sides of any of the Bank reported inflation numbers?

People say we are going to get inflation from monetizing the debt and creating a ton of Base money. It's not, it's already happened and they are now back filling to cement the gains of asset holders for ever....and we all think it's okay because it doesn't seem to have affected the price of tomatoes of late?

Even on the chosen measure it's not good.

This is from today's employment release:

EarningsVsCPI.gif

http://www.ons.gov.uk/ons/dcp171778_325094.pdf

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Whilst unemployment is falling and employment rising there is also the not so positive behaviour of wages as the analysis quoted from below explains.

Wages

It would be quite reasonable on the basis of the hours worked figure to challenge some of my theses that the UK economy is in a good phase but that problems remain. There is of course a rising population to consider but more importantly the signal provided by the numbers below.

Total pay for employees in Great Britain rose by 1.1%

Ouch! Was my first thought on seeing this. Last month’s number had looked more hopeful at 2.2% which for once had them approaching the level of consumer inflation. However the fear then was that this was distorted by a shift in bonus payments to take advantage of the drop in higher rate tax to 45%. As bonuses this month fell by just under 7% on a year on year basis we can see that such fears were justified and we find ourselves finding the fly in the ointment of an improving UK labour market which is weak wage growth. Soon we may find ourselves returning to fears that not only is the pattern weak but that it is also getting weaker.

Real Wages are falling heavily again

Using the Consumer Price Index real wages are falling at an annual rate of 1.7% and using the Retail Price Index they are falling at an annual rate of 2%. Whichever you pick the situation looks grim.

http://www.mindfulmoney.co.uk/wp/shaun-richards/where-does-falling-uk-unemployment-but-also-falling-real-wages-leave-forward-guidance/

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Thanks for the link FT.

From one of the first graphs.

Data 2008 to 2013

-272,000 males in full time employment

+279,000 males in part time employment

+39,000 females in full time employment

+382,000 in employment

That tells a story on it's own.

Edited by Sancho Panza

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This is from the Telegraph, showing that the Real Estate Activities sector classification is showing the strongest jobs growth rate (by far). Estate agents are hiring.

50K jobs have been added in this sector over the last quarter, and 77K over the past year (see Table 6: Workforce jobs by industry in the release doc).

Meanwhile the Construction sector has a quarterly growth rate of only 0.7% and employment levels are virtually unchanged over the year.

The rebalancing continues.

Employment0913.gif

http://www.telegraph.co.uk/finance/bank-of-england/10301646/Strong-jobs-market-helped-by-rising-house-prices.html

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Here's the UK base rate for nearly forty years,

http://www.bankofengland.co.uk/boeapps/iadb/repo.asp

I don't think the base rate will exceed 1% during the life of this parliament, and it won't exceed 3% during the next parliament. Hanging your hopes for a house price crash on the possibility of suddenly surging interest rates is a waste of time. The way to bring house prices down is to become more politically active and campaign for,

1. Increasing home building from under 100k per year to over 300k via more relaxed planning regulations.

2. Ammending the current landlord friendly rental legislation towards something that gives the tenant more tenure and security.

3. Capping then reducing the amount of housing benefit.

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Here's the UK base rate for nearly forty years,

http://www.bankofengland.co.uk/boeapps/iadb/repo.asp

I don't think the base rate will exceed 1% during the life of this parliament, and it won't exceed 3% during the next parliament. Hanging your hopes for a house price crash on the possibility of suddenly surging interest rates is a waste of time. The way to bring house prices down is to become more politically active and campaign for,

1. Increasing home building from under 100k per year to over 300k via more relaxed planning regulations.

2. Ammending the current landlord friendly rental legislation towards something that gives the tenant more tenure and security.

3. Capping then reducing the amount of housing benefit.

You missed

4. Mass protests.

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Here's the UK base rate for nearly forty years,

http://www.bankofeng...s/iadb/repo.asp

I don't think the base rate will exceed 1% during the life of this parliament, and it won't exceed 3% during the next parliament. Hanging your hopes for a house price crash on the possibility of suddenly surging interest rates is a waste of time. The way to bring house prices down is to become more politically active and campaign for,

1. Increasing home building from under 100k per year to over 300k via more relaxed planning regulations.

2. Ammending the current landlord friendly rental legislation towards something that gives the tenant more tenure and security.

3. Capping then reducing the amount of housing benefit.

The market determines the cost of money. Not Bernanke, not Carney, not Kuroda.

The Canadian chump can leave base rates unchanged forever in a petulant act of defiance, that just means more inflation for ho moanerz to grapple with as the costs of their mortgages grind ever higher.

base-rates-bank-rates-500x377.png

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You're right that mortgage rates aren't the same as base rates. But the OP was framed in terms of the base rate so I followed suit.

According to this forum the typical variable rate mortgage is about two points above bank rate,

http://www.housepricecrash.co.uk/graphs-base-rate-uk.php

So I'll rephrase my forecast, over the life of this parliament variable mortgage rates won't exceed 3%, and over the life of the next parliament variable mortgage rates won't exceed 5%.

That's enough to make some mortgage payers squeal, it's probably enough to put the brakes on any further house price increases, but it's not enough to precipitate a meaningful house price crash. The best way to achieve affordable housing is with a house building boom, followed by more tenant friendly legislation and a reduction in the housing benefit bill.

If you have a different forecast why not share it.

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Problem is the unemployment figure is all another work of fiction like inflation.

I was with a friend last night who is on the over 50 scrap heap in London and he keeps getting sent on really stupid 3 or more week courses which keeps him off the figures. This is but one of many ways its all fudged.

[/

quote]

yeah, my wife lost her job last xmas,and cant get the dole because im working , and I know plenty like her.

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You're right that mortgage rates aren't the same as base rates. But the OP was framed in terms of the base rate so I followed suit.

According to this forum the typical variable rate mortgage is about two points above bank rate,

http://www.housepricecrash.co.uk/graphs-base-rate-uk.php

So I'll rephrase my forecast, over the life of this parliament variable mortgage rates won't exceed 3%, and over the life of the next parliament variable mortgage rates won't exceed 5%.

That's enough to make some mortgage payers squeal, it's probably enough to put the brakes on any further house price increases, but it's not enough to precipitate a meaningful house price crash. The best way to achieve affordable housing is with a house building boom, followed by more tenant friendly legislation and a reduction in the housing benefit bill.

If you have a different forecast why not share it.

Thank you for the clarification.

I wouldn't argue that base rates will be kept as low as possible for as long as possible.

Whether it will be enough to support asset prices where they are is another thing.

If there is a collapse in HPI,then I would think that IR's won't be it's immediate cause but rather a lack of aggregate demand across the wider economy.The simple reality is that the velocity of money is dropping-still,disposable incomes are dropping-still,partime employment is rising as a proportion of toal employment-still,the UK govt is running large fiscal deficits-still.

I could go on.In 2007 it was about HPI.I think the debate has moved on somewhat since those days.HPI is a symptom of a much deeper and more chronic illness for the UK economy.

I'm sorry to be boring,but I'm old.

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yeah, my wife lost her job last xmas,and cant get the dole because im working , and I know plenty like her.

A very good point.

The unemployment figures fail on so many levels.

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So four out of five new jobs since 2008 have gone to women working part time (sub 25 hours).

Male employees is roughly the same as 2008 but 280,000 are now part time instead of full time.

This is why the benefit bill keeps shooting up.People across the economy and across income bands have seen working 16/25 hours brings in the same money as working 40 hours single/80 hours a couple.

Business as well of course knows its far better to employ part time and keep wages/NI low and let the state pick up the wage bill to a living level.

This is the real story of the economy and why the so called recovery is a farce.That deficit isn't going to be coming down any time soon.These changes are structural.

Unless the government can find a way to change the welfare system this will continue.This is the reason all the conditionality has been added for part time workers to UC.Tax credits doesn't have any.They were banking on that coming in.

We could see some moves on tax credits in the autumn statement where they sneak in some more hours rules.It suits the government on the one hand to say oh look employment is growing but they be better off if it wasn't growing in regards to the deficit.

Each new job had added to the debt,,what an economy we have.

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