Newly released economic data appears to vindicate the MPC's decision not to raise interest rates in light of rampant consumer spending over Christmas, with the third straight month in which the jobless total has climbed higher.

The latest unemployment totals, released today by the Office of National Statistics (ONS), show that the number of people out of work and claiming benefit rose by 3,200 last month to 963,500. The small increase does seem to mask what appears to be a tale of two halves. While the service sector has held up pretty well, employment in manufacturing fell by 146,000 to 3.78 million - the lowest level since the first records were kept in 1978.

Although this is not exactly great news, particularly for the manufacturing sector, the UK is still faring relatively well when compared to our economic peers. Our rate of unemployment is currently running steadily at 3.2%, the lowest in the Group of Seven nations and well below the 5.8 percent currently being experienced in the US.

The benign nature of the current economic climate was further highlighted by Tuesday's inflation report from the ONS, which revealed that inflation has slowed to its lowest annual rate in more than 40 years. However, although the RPI index fell 0.1 percent to an annual rate of 0.7 percent, RPIX inflation, which excludes the mortgage repayments, climbed 0.2 percent to an annual level of 1.9 percent. This leaves RPIX inflation more than half a percent below the target level of 2.5 percent, a level that inflation has now remained below for almost all of the last 3 years.

f increases in unemployment in the service sector start to match those in manufacturing industries then this will eventually dampen down consumer spending and demand for property. Coupled with a benign inflationary environment, this would create room for a further cut in interest rates - quite the opposite of the steady increases that most analysts have been predicting for this year.