They are estimates which are often revised as new information becomes available. But what is striking about the recent revisions is that the changes do not result from any new information about earnings, but simply from a change in the procedures used to weight together the earnings in different firms and industries. It may be that this change has made it more difficult to make comparisons of earnings over time, and hence to measure underlying earnings growth. Whatever the explanation, there has certainly been a change in the estimated profile of earnings growth over the past two years. The revised data suggest that instead of rising steadily BIS Review 86/1998  -4-  throughout last year, as the economy grew at above-trend rates and the labour market tightened, the rate of growth of earnings actually fell. From a peak of 5.3% in February last year, earnings growth is now estimated to have slowed consistently until March of this year, when it reached a level of 3.9%. This deceleration in earnings growth coincided with a period in which, according to the Labour Force Survey, the labour market tightened considerably: employment rose by 360,000 unemployment fell by 320,000 and the unemployment rate fell from 7.8% to 6.5%. Over the same period wage settlements accelerated. And the revised data imply that since March of this year, as the pace of economic growth has slowed, earnings growth has accelerated, from 3.9% in March to 5.2% in June.
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