UK unemployment falls to seven-year low, but Bank is right to be cautious

Why is it that an economy that is creating jobs at a healthy rate has borrowing costs lower than at any time in the Bank's history?

The last time Britain's unemployment rate was as low as 5.5% was during the period of phoney calm between the run on Northern Rock and the collapse of Lehman Brothers. At that point, with the economy in the early stages of recession, official interest rates were 5%.

Over the past year, employment has grown by 564,000, with an additional 202,000 jobs created in the last three months alone. Yet interest rates stand at 0.5%, which is where they have been for the past six years. And, judging by the latest smoke signals from Threadneedle Street, the Bank of England has no intention of raising them any time soon.