U.K. jobless claims rose for an eighth consecutive month in September, extending the longest period of increases in almost 13 years, “as growth in Europe’s second- biggest economy slows”. This adds just a little more evidence to the fact that all is not necessarily currently all for the best in the land of John Stuart Mill. However as NTC research point out, not all is totally bad either:

Meanwhile, annual average earnings growth held steady at 4.2 percent in the three months to August, signalling that higher inflation is still not feeding through to wages.

So earnings continue upwards at a healthy clip, but not above trend. No evidence of ‘secondary effects’ here then. Which makes you wonder why the normally reasonable Mervyn King is currently being so evidently unreasonable. You can find my explanation for this here (and in the comments).

Mervyn King on Tuesday night signalled he was not convinced of the case for lower interest rates and could see many reasons why the rise in oil prices might increase inflationary pressure.

He insisted the Bank was not responsible for the slowdown in growth this year; said high oil prices must lead to slower growth of household incomes; implied the recorded low growth rate might understate economic conditions and prospects; and reminded his audience that high oil prices reduced the economy’s ability to grow without inflation.Some of the messages were delivered explicitly, some in code, and all within the convention that MPC members “keep an open mind on the future path of interest rates” and do not reveal how they will vote in meetings.

Many economists and investors had believed the Bank could cut interest rates from 4.5 per cent, perhaps as soon as November, because economic growth has proved to be lower than forecast.Disappointing growth, they argued, increased the level of slack in the economy and rapid expansion, induced by a cut in rates, could be sustained without sparking inflation.

Mr King does not accept that argument. Citing the recent words of Don Kohn, one of the US Federal Reserve governors, he said: “Policymakers should be cautious about responding aggressively to estimated movements in economic slack.”
Source: Financial Times

As one who counts himself among those “economists and investors” who believed the Bank could have cut interest rates from 4.5 per cent, I would say: c’mon Mervyn, what would be so aggressive about a quarter or a half per cent cut, or do you want to keep your powder dry just in case things do go badly wrong on the housing front. After all it is a little hard to be aggresive if you’ve already used your ammunition!