At the time of that Report the latest figure for earnings growth was 5.4%. Given historical levels of productivity growth of around 2%, this level of earnings growth was, on the face of it, incompatible in the long run with the inflation target of 22. That led to an extended discussion during the summer, both within the MPC and among commentators in the press and the City, about the extent to which those levels of earnings growth had been distorted by the impact of bonuses during the Spring of this year and so might be expected to fall in due course without the need for an easing of pressures in the labour market. Since August, the estimates of this key economic statistic have been revised - not once, but twice. The good news - somewhat ironic given the amount of attention it attracted earlier this year - is that as a result of these revisions the “great bonus debate” of the summer has become a non-issue. Bonuses, we are now told, if anything subtracted from, not added to, the growth of earnings in March and April of this year. The bad news, however, is that if before the revisions it was difficult to know how to interpret the impact of bonuses on earnings growth, it is, I think it is fair to say, now extremely difficult to know how to interpret any aspect of the earnings data. Statistics, official or otherwise, are neither right nor wrong.
It is not easy, therefore, to reconcile the revised earnings data with other information on the labour market. And these data really matter for the MPC’s assessment of the UK economy. I can promise you that the Bank, the Treasury and the Office for National Statistics will, as a matter of urgency, be working together to try to understand what is happening to earnings. Decisions on interest rates must take into account not only those factors which I have highlighted this morning - the international economy, the possibility of a credit crunch and uncertainty about the trend in earnings growth - but also a wide range of other information relevant to the outlook for inflation, including the behaviour of the monetary aggregates, which are still growing quite rapidly, and the fall in sterling’s effective exchange rate. Over the next two weeks more important data will become available, including the first estimate of GDP growth in the third quarter, a CBI Industrial Trends Survey and the monthly report from our regional Agents. At our next meeting on 4 and 5 November, the MPC will take into account all of this information, and occasions like today are part of the process by which we obtain more information and exchange views with those most directly affected by our decisions. BIS Review 86/1998