ONS Reports Big Unemployment Drop

The Rate Of Joblessness Is Now Close To The BoE's 7% Target

22.01.2014

Fergal Dowling, Partner | +44 (0)121 214 5476

The Office for National Statistics (ONS) has reported a big drop in unemployment.

A new report released by the authority shows that the number of working age jobless people across the UK currently stands at 2.32 million people - down 167,000 from the third quarter of 2013.

This represents a total unemployment rate of 7.1 per cent, close to the Bank of England's (BoE) hugely important seven per cent target.

BoE executives, including governor Mark Carney, have previously stated they will only consider raising the record low 0.5 per cent interest rate once the proportion of working age people out of work hits 6.9 per cent or below.

This would have a number of implications for SMEs and would likely make it significantly easier for small businesses to access funding, something that could improve the country's wider economic situation.

However, some commentators are already worried about whether the UK's recovery is being fuelled by consumer borrowing, claiming that an interest rate boost might make an otherwise healthy GDP rate become unsustainable.

The BoE's Monetary Policy Committee, which decides interest rates, has pledged not to act too quickly on raising this benchmark and has confirmed it is looking at steps to ensure the UK does not enter another period of economic uncertainty.

But despite these long-term issues, an analyst from consultancy BNP Paribas told the BBC the drop in unemployment was "staggering" and above and beyond anyone's expectations.

Labour's shadow work and pensions secretary Rachel Reeves welcomed the fall in unemployment but said:

"These figures also show prices are still rising more than twice as fast as wages which means working people are over £1,600 a year worse off on average under this out-of-touch government."

The government has countered this point by suggesting the Low Pay Commission should increase the minimum wage to around £7 per hour, up from £6.31 as it currently stands.

Expert Opinion
It is very positive news to see unemployment levels fall and it is very likely that small businesses will have played a key role in helping to drive this trend, particularly with recent reports all indicating growing confidence and rising ambitions among this community.

"Other recent research has shown that smaller firms have been turning their attentions to recruitment and it is particularly important on this point that they seek legal advice, specifically when it comes to have relevant HR policies and contracts in place.

"The flipside of the falling unemployment levels is the impact this will have on interest rates. As we’ve said previously, the Bank of England has provided guidance on the long term future for rates and it is important that it provides clarity in this area. This is particularly due to the impact that rates can have on determining important investment decisions for many businesses."
Fergal Dowling, Partner