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Carney looks to lower unemployment interest rate trigger to 6.5%

Bank of England governor Mark Carney is expected to lower the unemployment threshold at which an interest rate rise will be considered to 6.5 per cent.

Carney said in his August forward guidance that rate increases would not be considered until unemployment fell to 7 per cent, anticipated in 2016.

But recent falls in unemployment have suggested that the rate could hit 7 per cent before that date, prompting economists to predict a shift in the threshold to 6.5 per cent. This would allow the BoE to hold interest rates at 0.5 per cent this year.

According to the Office for National Statistics, the UK unemployment rate fell by a record 0.3 per cent to 7.4 per cent for the three months to October, representing the largest fall since jobless measurements began in 1971.

Unemployment reached its peak in early 2012 when the rate hit 8.4 per cent.

Societe Generale economist Brian Hilliard told the Sunday Times: “We think [the Monetary Policy Committee] will revise the threshold in the February inflation report and it will be taken down to no higher than 6.5 per cent. It could even be lower.”

Barretts Financial Solutions senior partner Kim Barrett says: “It would be disastrous if the base rate rose in 2014 because there are still a lot of people struggling with debt who would be badly affected.”

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