(Updates with details from Q&A and speech)
By Andy Bruce and David Milliken
LONDON Jan 13 British unemployment is unlikely
to rise this year by as much as the Bank of England forecast two
months ago, and should instead stay close to its current 11-year
low, one of the bank's policymakers said on Friday.
Michael Saunders said inflation was still likely to
overshoot the BoE's 2 percent target this year, but this
reflected sterling's weakness since June's Brexit vote.
"Economic growth has recently been stronger than expected,"
he said in a speech to London's Resolution Foundation, a think
tank focused on low pay.
"Rather than the rise in unemployment forecast in the
November Inflation Report, it seems quite possible to me that
the jobless rate will stay below 5 percent this year," he added.
Britain's unemployment rate fell to 4.8 percent in the third
quarter of 2016, the lowest since 2005. In November the BoE
forecast it would rise to 5.4 percent by the end of 2017, as
annual economic growth slowed to 1.4 percent from about 2
percent in 2016.
The central bank cut interest rates to a record low of 0.25
percent in August due to fears that Britain's economy would slow
sharply after June's vote to leave the European Union. But as
signs grew that the economy was holding up, the BoE said in
November it no longer intended to cut rates further.
Saunders, an independent external member of the BoE's
Monetary Policy Committee, said the equilibrium jobless rate -
the rate where it exerts no upward pressure on inflation - had
probably fallen below 5 percent, but he was unsure by how much.
Rather than pushing up unemployment, he said economic
weakness was more likely than in the past to translate into less
secure jobs, shorter hours, or people leaving the workforce.
Strong wage growth was not in prospect, however. Saunders
predicted it would remain well below the 4 percent rates seen
before the financial crisis, unless growth or public inflation
expectations moved much higher than he expected.
One factor in this, he said, might be the role of migration
from the European Union in pushing down wages at the lower end
of the labour market - something which other economists have
struggled to find much hard evidence of in Britain.
But Saunders said some of this analysis might have been too
simplistic and failed to factor in how much pay would normally
increase as the jobless rate fell and growth picked up.
"The greatest undershoots in pay growth relative to the
jobless rate in recent years have been in regions with high
migration inflows," he said, referring to London and southeast
and eastern England.
However, Saunders said economists had been misled in the
past by overestimating the amount of slack in the economy, only
to be surprised by a later surge in inflation.
"If pay and other labour market guides give clear warning
signs in coming months ... this would have obvious implications
for monetary policy, unless downside risks to economic growth
rise significantly," he said.
(Additional reporting by Alistair Smout, editing by William