The Bank of England’s new governor, Mark Carney, yesterday committed to leave interest rates unchanged until UK unemployment falls below 7 per cent.
As ever, targets based on national averages hide the large variation that is seen across UK cities. Currently the ILO measure of unemployment ranges from 3.4 per cent in Cambridge to almost 16 per cent in Hull (April 2012-March 2013 data). And unemployment is above 7 per cent in 49 of Great Britain’s 63 cities (see the map below). As has been the case for the European Central Bank across the Eurozone, this variation makes setting interest rates very difficult – some places may require an increase in interest rates to manage demand at the same time when an interest rate hike is the last thing that other places need.
What’s even more interesting is to look at the persistence of unemployment. Cities such as Reading, Warrington and York have never had an unemployment rate above 7 per cent over the last nine years. Birmingham, on the other hand, has never seen its unemployment fall below 7 per cent over this period.
To vary interest rates across cities would require a break up of sterling, with each city adopting their own currency. Clearly this is not sensible. But it does underline the requirement to avoid one-size-fits-all policies in other areas of policy in order to assist those cities that face the biggest challenges.
City Deals were supposed to be a step towards greater devolution. It now seems that the future introduction of Local Growth Deals has reduced the scope of City Deals. The key for Government is for it not to lose its way with its devolution agenda – when national unemployment does (hopefully) fall below 7 per cent, cities such as Birmingham will still need to have the tools to help counterbalance the impact that an increase in interest rates might have on their economies.
Director of Policy and Researchp.firstname.lastname@example.org
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