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LONDON (Alliance News) - The unemployment rate in the UK declined by more than expected in the three months to November 2013, leading to calls for renewed clarity around forward guidance from Bank of England Governor Mark Carney. Meanwhile, minutes from the BOE's latest Monetary Policy Committee stated that the interest rate and quantitative easing will be held at current rates.

The latest unemployment figures from the Office for National Statistics showed that the jobless rate for the September-November period was 7.1%, just above the central bank's threshold for considering increasing interest rates.

Announced in tandem, policy makers of the Bank of England were unanimous in the decision to hold the interest rate and quantitative easing at their meeting on January 8 and 9, according to the minutes of the meeting. The nine-member Monetary Policy Committee voted to retain the record-low 0.50% interest rate and asset purchases at GBP375 billion per month.

The Bank of England originally guided in August 2013 that it will not raise interest rates until UK unemployment reaches 7%, and that it expected that to happen in mid-2016. However, markets have been pricing in an interest rate rise sooner and sooner as unemployment has since dropped much faster than originally forecast.

With unemployment remaining barely above 7%, the Committee's policy guidance remained in place and no member thought it appropriate to tighten, or to loosen, the stance of monetary policy at the current juncture, the minutes said: "Members... saw no immediate need to raise the Bank Rate even if the 7% unemployment threshold were to be reached in the near future."

The minutes also stated: "It is likely that the headwinds to growth associated with the aftermath of the financial crisis would persist for some time yet and that inflationary pressures would remain contained," and that when the rate is raised, it will be only gradually.

The latest rate is the lowest recorded since the December-February period of 2009. In June-August, the jobless rate stood at 7.7%. Economists had forecast a decrease to 7.3%.

The claimant count, or the number of persons seeking jobless benefits in the UK, declined by 24,000 month-on-month in December to 1.25 million - the lowest level since January 2009. The decline was less steep than the expected fall of 32,000 claimants. The claimant count rate dropped to 3.7% in December from 3.8% in November - the lowest since December 2008.

Total pay and regular pay both increased 0.9% each in the September-November compared with the same period last year.

Despite the Committee's assurances that it will hold fast on a rate increase, "today’s numbers certainly increase the pressure on the Bank of England at next month’s rate meeting with respect to their forward guidance," commented CMC Markets Chief Market Analyst Michael Hewson. "Be that as it may we aren’t at the Bank of England’s 7% rate threshold yet and it could be some time before we do hit it or even drop below it."

Hewson added: "While this morning’s data undermines once again the Bank of England’s forecasting models, it seems unlikely that we will see much change to policy at next month’s meeting apart from a slight tweaking of the guidance language and a reiteration of concern about the recent appreciation of sterling."

It is important to note that the headline figure is on a rolling three-month basis, following the 8% single month figure reported for August, which drops out of today's result. Hewson suggests that the next rolling average, with the December numbers included, could see a slight rise, as the one month figure has increased from 7.0% in October to 7.4% for November.

The latest figures have sparked calls for updated guidance from the BOE governor. "The issue for the Bank of England is that its forward guidance policy is now outdated after just five months. Mark Carney and co. must decide if they cut the unemployment threshold to 6.5% or 6%, or base future interest rate decisions on wage growth rather than solely unemployment," said UFX Markets Managing Director Dennis de Jong.

The Bank of England now faces the challenge of retaining the credibility of its guidance while at the same time attempting to control strength in the pound and not risking the UK's recovery. The latest World Economic Update from the IMF suggested that the BOE, along with other central banks, "should keep monetary policy accommodative while fiscal consolidation continues."

The pound shot higher in the aftermath of the latest reading, in both a reaction to the strength of the UK economic recovery and a sign that the central bank's forward guidance is largely being ignored. The pound immediately gained about 70 cents against the dollar and has continued to push higher into afternoon trading, recording a three-week high of USD1.6550. Against the euro, the pound had made a new 12-month high of EUR1.2220.

Also released amid a slew of data releases, the UK budget deficit narrowed by GBP2.1 billion from the previous year to GBP12.1 billion in December, according to the Office for National Statistics, below the expected level of GBP14 billion. There was no transfer from Bank of England Asset Purchase Facility Fund to the Treasury in December.

In UK company news, Hurricane Energy said it intends to list on AIM in February. The company, which is embarking on drilling for oil in fractured basement reservoirs in the North Sea, a potential new source of oil in the area, said it will raise GBP18 million by placing 41.9 million shares at 43 pence each.

Hurricane will issue a further GBP31.4 million in shares in respect of convertible loan notes and a warrant issued in March 2013. The total funds of GBP49.4 million will be used for operations and working capital. It expects its market capitalisation to be about GBP272 million when its shares are admitted to AIM, with the IPO expected to take place February 4.

The EU can intervene to curb short-selling in certain situations, the bloc's top court has ruled, rejecting a British complaint over the measure. The ruling confirms the powers granted to the European Securities and Markets Authority in 2012 to intervene in EU financial markets to curb short-selling in cases of serious financial instability.

In short-selling, traders attempt to make money by betting that an asset's value will fall.

The law was introduced in the wake of the EU's financial crisis, when short-selling was blamed for contributing to a freefall in European banks' share prices. Britain opposed the law and took the case to the European Court of Justice, arguing that ESMA had a "very large measure of discretion of a political nature," going beyond EU provisions, and could not be based on legislation aimed at harmonizing the bloc's single market. The ECJ dismissed the complaint on the grounds that ESMA's powers were limited by various conditions and criteria.

The Bank of Japan has decided to keep its monetary easing plan unchanged and retained its inflation forecasts for the next two years, strengthening expectations that the central bank may keep the policy steady at least for now, with consumer prices evolving in line with its forecasts.

At the end of a two-day meeting of the nine-member Policy Board, led by Governor Haruhiko Kuroda, the central bank said it will keep the target of the monetary base expansion at an annual pace of JPY60-70 trillion. The Board said that the economy has continued to recover moderately, but observed that there has been a front-loaded increase in demand ahead of April's consumption tax hike. Overseas economies, particularly advanced economies, are starting to recover, despite overall "lackluster performance".

The central bank's growth estimate for fiscal 2013 remained unchanged at 2.7% growth it forecast in October, while the outlook for fiscal 2014 was downwardly revised to 1.4% from 1.5%.

UK Energy market regulator Ofgem has accused UK Energy provider Npower of misleading customers over energy distribution costs. A recent report by the energy firm, one of the UK's big six energy suppliers, originally stated that the cost of transporting gas and electricity would increase from GBP295 per customer to GBP314 between 2015 and 2020. Npower has since put out a correction, stating that the total increase will be closer to GBP5 to GBP10 per dual fuel customer for the period.

Questions about the strength of the global economic recovery were high on the agenda Wednesday as business and political leaders gathered for the annual World Economic Forum in Davos. About 2,500 chief executives, government leaders, economists and scientists started the four-day forum in the Swiss ski resort to discuss not only ways to leave the crisis years behind for good but also how to tackle lingering problems such as growing inequalities, youth unemployment and ageing societies.

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FTSE 100: down 0.01% at 6,833.34
FTSE 250: flat at 16,144.2
AIM ALL-SHARE: down 0.2% at 880.3
GBP-USD: 1.6560
EUR-USD: 1.3565
GOLD: USD1,241.30 an ounce
OIL (Brent): USD107.31 a barrel

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KEY UK CORPORATE NEWS:

FTSE 100: British Land has sold the freehold of the Eastgate Shopping Centre in Basildon to Infrared Capital Partners for GBP88.6 million, part of its plan to dispose of assets that do not fit its strategy. The property produces a net passing rent per year of GBP6.5 million with rents. BHP Billiton reported that global iron ore production for the second quarter grew 16% year-over-year, but remained flat sequentially. Production of metallurgical coal grew 30%. Total iron ore production for the first half of 2014 increased 19%. The company also maintained its full-year production guidance for petroleum, copper, iron ore and coal businesses. Hotels and coffee shops operator Whitbread said Chairman Anthony Habgood will step down later this year. Habgood has been chairman of the company since mid-2005. The process to find his successor will be led by Ian Cheshire, the company's senior independent director. AstraZeneca said the Xigduo treatment developed with Bristol-Myers Squibb as part of their diabetes collaboration has been approved in the European Union as a treatment for Type 2 Diabetes. Xigduo is indicated for adults aged 18 and older with type 2 diabetes mellitus as an adjunct to diet and exercise to improve glycaemic control. Sage Group said it is on course to deliver its target of 6% organic revenue growth in 2015, as it saw trading in line with expectations in the first quarter. In the period from October 1 to date, the business-management software company said it had seen trading in line with expectations across all regions it operates in. Property company Land Securities Group reported improved occupancy rates in its retail properties, as it said it had secured GBP7.3 million of development lettings and GBP5.4 million of investment lettings since October 1, 2013. The company said it has a further GBP7.9 million of development lettings with solicitors, meaning they're close to being signed, and a further GBP0.5 million of investment lettings.

FTSE 250: British pub chain JD Wetherspoon said that total sales and like-for-like sales are both up in its most recent trading quarter, and in the year to date. The UK-based pub owner and operator still says its targeting a reasonable outcome for the current financial year ending July 27, despite tax and cost pressure, and assuming reasonable sales growth. JD Wetherspoon said that total sales were up 10.6%, for the 12-week period to January 19, with like-for-like sales up 6.7%. WH Smith said it delivered a good profit performance in the 20-week period to January 18, as profit margins improved and costs were well managed across the business. But the retailer said total sales continue on a downward trend. The stationer and bookseller said it is still keeping a tight lid on costs, which is helping improve its gross margin. Total sales for the 20 week period were down 4%, as well as on a like-for-like basis. Residential property company Grainger said the Royal Borough of Kensington and Chelsea in London has granted detailed planning permission for 84 new homes across two sites in the borough.

AIM: Shares in Tristel are up. The company said it expects to report revenue and pretax profit ahead of previously upgraded expectations for the six months ended December 31 2013. The biotechnology company said it had seen a strong first half and expects revenue to be over GBP6.4 million, up from GBP4.4 million in the previous year. Leni Gas & Oil shares are also up after the company said it has started mobilisation for the construction of the first drilling sites of its newly approved 30 development well programme at its 100%-owned Goudron Field in Trinidad. It said the first new well at the site will be drilled to roughly 4,000 feet and is targeting two regions of net oil sands in spaces equalling 250 feet and 100 feet. Cello Group also has seen its shares boosted after the marketing company announced that its 2013 revenues and headline pretax profit are expected to beat market expectations, and a good new business pipeline it achieved in the fourth quarter has set it up for a solid start to 2014. ServicePower Technologies is up; the company has risen after it said that it had seen strong revenue growth during 2013, due to new contracts and client renewals. The software company said it expects revenue of GBP14.0 million, up more than 25% from GBP11.1 million in the previous year. It expects gross profit of GBP6.6 million. Shares in clean technology oil re-refining company, Hydrodec Group are up after it said it expects to report a 52% increase in revenues for 2013, and underlying EBITDA significantly above the figure for 2012. W Resources shares have been boosted during morning trading. The tungsten exploration and development company said final concentrate for production specification tests for La Parrilla tailings project in Spain have shown higher grades of tungsten. The company said final test work at the ALS Chemex Vancouver labs support a concentrate specification of 63% tungsten, significantly higher than the company's target level of 50% tungsten, and 8% tin. At the other end of the market, Bezant Resources shares have dropped after the natural resource exploration and development company said Gold Fields Netherlands Services BV will not be exercising its exclusive option the acquire the company's Mankayan project in the Philippines. Instead, Bezant said Gold Fields plans to focus on its producing Australian assets and its Far Southeast project, four kilometres from the Mankayan site. Great Western Mining shares also are down. The company said it has raised, through XCAP Securities, a further GBP1.5 million through a share placing. The mineral exploration company said the placing was for 120 million shares in the company at a price of 1.25 pence per share. The funds will allow the company to start its phase 2 drilling programme on its Target 4 copper-gold prospect in the western US.

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AFTERNOON WATCHLIST: World Economic Forum - Davos

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Thursday's Key UK Corporate Events

Petropavlovsk Trading Statement
Chemring Group Preliminary results
easyJet Interim Management Statement
St James's Place Q4 results
PayPoint Interim Management Statement
Kentz Trading Update
AG Barr Trading statement
Petra Diamonds Trading Update
Pearson Trading statement
London Stock Exchange Interim Management Statement

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Thursday's Key Economic Events

All Day World Economic Forum - Davos
n/a Germany German Constitutional Court Ruling
n/a UK 10-y Bond Auction
01:45 China HSBC Manufacturing PMI Preliminary
02:00 China CB Leading Economic Index
05:00 Japan BoJ Monthly Economic Survey
07:45 France Business Climate
07:58 France Markit Manufacturing PMI
07:58 France Markit Services PMI
08:28 Germany Markit Manufacturing PMI
08:28 Germany Markit Services PMI
08:58 EU Markit Manufacturing PMI
08:58 EU Markit PMI Composite
08:58 EU Markit Services PMI
09:00 EU Current Account
11:00 UK CBI Distributive Trades Survey - Realized
13:30 US Chicago Fed National Activity Index
13:30 US Initial Jobless Claims
13:30 US Continuing Jobless Claims
13:58 US Markit Manufacturing PMI Preliminary
14:00 US Housing Price Index
15:00 US American Petroleum Institute Monthly Report
15:00 US CB Leading Indicator
15:00 EU Consumer Confidence Preliminary
15:00 US Existing Home Sales
15:30 US EIA Natural Gas Storage
16:00 US EIA Crude Oil Stocks
16:00 US Kansas Fed manufacturing activity

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By Alice Attwood; aliceattwood@alliancenews.com; @AliceAtAlliance

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