Unemployment to fall to 7.6 per cent says Capital Economics

Capital Economics expects unemployment to fall by 50,000 to 7.6 per cent. In anticipation of Wednesday's labour market figures, the London-based consultancy's November labour market monitor said a fall in unemployment could reinforce markets belief that interest rates will rise sooner than the Monetary Policy Committee (MPC) anticipates.

Capital Economics, writing on Monday, said:

Since a simple extrapolation of the downward trend in the unemployment rate since its peak suggests that it could fall to the MPC’s seven per cent threshold in Q2 2015, a further fall in the unemployment rate in September could fuel expectations that the next rate hike is less than two years away.

The note highlights the rise in the weighted employment balance of the CIPS/Markit surveys for October to its highest point since May 1997. The six private sector employment surveys that are tracked closely by Capital Economics are consistent, based on previous form with annual growth in total employment of between one and two per cent. While these surveys exclude public sector employment, which has been declining, the claimant count dropped by 120,000 over the three months to September.

However, the group cautions that employment growth may slow, with output per worker four per cent below its peak and high levels of "underemployment." Capital Economics expects it will take longer for unemployment to reach seven per cent than most forecasters project.