"Today's figures should give reassurance to markets that the period of inflation being way above target is behind us. It makes it slightly easier for the MPC to communicate its policy of keeping rates low. It's not impossible that the 2 percent could be hit over the next three-to-four months."
- Philip Shaw, chief economist at Investec Securities
The Pound soared against other major currencies on Wednesday after data showed the unemployment rate unexpectedly fell to the lowest level since April 2009 through the three-month period to October, inching closer to the BoE's target and raising fears of a looming hike in interest rates. The number of unemployed people fell by 99,000 in the three months to October, meaning the total number of jobless people reached 2.39 million, or 7.4%- the lowest level since the February-to-April period in 2009. Analysts, however, expected the unemployment rate to remain unchanged at 7.6%. Moreover, there were 36,700 less people claiming Jobseeker's Allowance in November. The last but not least optimistic sign is that companies have finally started to raise wages, with average weekly earnings rising 0.9% over the corresponding period.
The data fuelled speculations the Bank of England will have to increase borrowing costs earlier than expected. When announcing the forward guidance, Mark Carney promised the policy will remain accommodative until the unemployment rate falls to or below 7%. But even then, the Governor said it does not necessary mean the central bank will pull the trigger.
The latest economic development is definitely contributing to Pound's strength. However, the BoE said that a further strengthening could hamper the recovery.
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