U.K. unemployment probably rose to match a 16-year high in the first quarter, adding pressure on Bank of England Governor Mervyn King as he prepares to explain why policy makers stopped expanding stimulus for the economy last week.
The jobless rate increased to 8.4 percent, according to the median forecast of 27 economists in a Bloomberg News survey. The Office for National Statistics will release its labor-market report at 9:30 a.m. in London. One hour later, King will speak at a press briefing on the Bank of England’s new economic forecasts and its May 10 decision to halt quantitative easing.
Rising unemployment and the government’s fiscal squeeze are damping domestic demand in the U.K., where the economy has slipped back into a recession. While some Bank of England policy makers have grown more concerned about inflation, a resurgence of the euro-area debt crisis may further hamper Britain’s ability to recover.
“A reintensification of the sovereign-debt crisis is destroying demand in the euro area,” said Philip Rush, an economist at Nomura International Plc in London. “It is depriving the U.K. of the external demand that it needs to rebalance.”
The first-quarter unemployment rate increased from 8.3 percent in the three months through February, the forecasts show. Jobless claims rose by 5,000 in April, according to a separate survey. That will lift the monthly claimant-count rate to 5 percent from 4.9 percent.
The Bank of England’s Monetary Policy Committee held its bond-purchase target at 325 billion pounds ($522 billion) last week. King will publish the new forecasts that underpinned the decision in the quarterly inflation and growth outlook today.
Consumer-price growth quickened to 3.5 percent in March from 3.4 percent in February, staying above the central bank’s 2 percent target. In the first quarter, inflation was faster than the bank projected in its last forecasting round in February.
The economy shrank 0.2 percent in the first quarter and the National Institute of Economic and Social Research said on May 10 that a recovery may only “take hold” in 2013.
Data yesterday showed the euro area avoided its second recession in three years as 0.5 percent growth in Germany offset contractions in peripheral countries. A political impasse in Greece after elections this month has sent stocks lower, pushed up bond yields of indebted nations and led European leaders to ponder the prospect of Greece exiting the currency union.
“The door for more QE may be explicitly held open” by King at the press conference, said Rush. “But with inflation forecasts revised up slightly and the risks around the target balanced, we doubt this event will do anything other than reinforce expectations that policy is going nowhere for the foreseeable future.”
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