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mpc: 8 27 No new official whole economy productivity or unit labour cost data were yet available for Q3,but manufacturing productivity had shown signs of picking up and had consequently begun to reducethe rate of increase of unit labour costs in that sector. The latest GDP data suggested thatproductivity growth for the whole economy might have risen to around 2% at an annualised rate inthe third quarter, which would be close to its long run average. This was important, as the centralprojection in the November Report had assumed a recovery in whole economy productivity growthover the forecast period. The fall in profit margins could not go on forever, and required acontinuing intensification of competitive pressures. Unless there was an even stronger recovery inproductivity growth than had been assumed, earnings growth would need to turn out as low asassumed for the central projection of inflation to hold. Even then, unless productivity growthimproved further, inflation would tend to rise at some point in the future, as the short-run downwardprice effects - of lower margins and a strengthening exchange rate - wore off and the effect of theunderlying strength of demand began to dominate. 28 Members of the Committee reflected on the November central projection for real earningsgrowth. The earnings profile in the central projection was somewhat lower than the average ofoutside forecasts made for 2000, and given the evidence of skill shortages it was possible that therisks to this projection were more clearly on the upside. But some members retained doubts aboutthe interpretation of the data, and as yet there was no firm evidence that the outturn for earningsgrowth was diverging markedly from the central projection made in November. This question wouldneed to be re-examined in the context of the February forecast round.

Tactical considerations

29 There were several tactical considerations discussed this month. First, the Committee concludedthat there was no reason to change the view outlined in the minutes of the September meeting thatthe Y2K period should not constrain UK monetary policy setting. However, there was a relatedconsideration concerning the data. The uncertainties about the size of millennium-related effectsmight make it more than usually difficult to interpret the data relating to the period covering theyear-end; particular examples were for consumer spending, investment, money and earnings. Ineach case there would be difficulty in reaching a clear interpretation of the data immediately after theturn of the year. But it was always difficult to interpret the data for, say, retail sales aroundChristmas and the New Year. It was not clear that this fog would be that much thicker than usual,and it would not preclude making a change in interest rates in either December or January.