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The drop in unemployment figures dropped dramatically between September and November 2013 to just 2.32 million, according to the BBC. This surprised many experts who had predicted far fewer numbers gaining employment. Then in December, the Office for National Statistics shows that many people stopped claiming Jobseeker’s Allowance as Britain saw an influx in employment. As the unemployment rate sits at just 7.1%, it is close to a level that is likely to create a rise in interest rates. It may be a welcome surprise to find Britain recovering well from the latest recession, but the hike in interest rates could well see a rise in mortgage payments. The question is, how this is likely to effect the millions of homeowners and the economic climate of the UK.
Prime Minister David Cameron said that “more jobs means more security…and opportunity for the British people”, however it is still clear that much needs to be done to tackle the high levels of long-term unemployment still very much apparent.
Aside from the welcoming issue of falling unemployment overall, this issue is coupled with the likelihood that the Bank of England’s base rate will rise. It is currently at 0.5% and has been since 2009 when Mark Carney (bank governor) stated categorically that a rise in the base rate would not occur until unemployment fell below 7%. However the banks did not expect this to occur for the next few years.
However, inflation also saw a larger drop than predicted, at 2% in December, therefore it is still uncertain as to the need for a rise in interest rates to occur. The International Monetary Fund have now raised their forecast for 20014 to 2.4% in light of this.
The biggest worry for homeowners at the moment then is the unexpected rise in mortgage payments for those not holding a fixed rate mortgage. Yes the Prime Minister may be right in saying that the rise in employment creates security for Britain, but the minimum wage is still fairly low compared with the rest of Europe and is not rising in line with the current cost of living. There are also issues to tackle regarding employment contracts as many employers are only offering minimum hours contract, which could pose a problem for many employees should businesses fail in the future. Many employees are also working for ‘temp’ agencies and therefore job security may not be as strong as it first appears.
This unexpected fall in unemployment is certainly a positive step for many, but there are some who are still hovering over the bread line, working hard to keep up with rising energy prices and mortgage repayments, so as they can keep a firm grasp of their home. Any rise in interest rates that are reflected in mortgage repayments or other homeowner commitments may very well cause severe hardship for some, and thus create an influx of people at risk of losing their home to repossession. The UK needs to tread very carefully and learn well from past recent errors.
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