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mpc: 5 18 Growth in retail sales volumes (which excluded spending on vehicles) continued to slow on a three month on three month basis, while still running at around 4% at an annual rate. As always, it was difficult to gauge the underlying pattern of sales over the Christmas and New Year period, and it would be sensible to look at data for December and January together when these became available. This was even truer this year, given the uncertainties over the impact of the millennium date change. However, most of the determinants and indicators of consumption (such as real labour incomes, financial and non-financial wealth and household borrowing, as well as consumer confidence) appeared either to be strengthening or to have remained strong, suggesting that consumer spending might continue to grow relatively rapidly in the near future; this was in line with survey data on retail sales for December. But car sales seemed to be weak, with some consumers apparently delaying purchases in the hope that prices might fall sharply in the near future.

The labour market

19 Whole-economy headline earnings had risen by 4.9% in the year to October, with private sector earnings up by 5.1%. The headline figures represented a three-month average; taking the data for October alone, whole-economy earnings were up 5.1% on a year earlier, even though October was not a month in which bonus payments were typically large. There could be further upwards pressure on the Average Earnings Index in the next few months, if bonus payments were unusually high, for instance for millennium-related reasons. In any case, the figures for October suggested an upward revision to the profile for earnings contained in the central projection in the November Inflation Report. 20 There was some evidence of a recovery in labour productivity in the most recent data, at least part of which was expected for cyclical reasons. The Inflation Report had built in a recovery in productivity growth, and the increase seen in Q3 provided some support for that assumption. But unless productivity continued to improve, or pressure on margins intensified further, or the exchange rate continued to strengthen, stronger nominal earnings growth would lead to higher inflation in the medium term. Other indicators of wage pressure were more mixed, and as usual for the time of year there was little new information on settlements. 21 Employment had continued to increase, but at a rather slower pace than in the previous two months, with Labour Force Survey (LFS) employment up 0.2% in the three months to October compared with the previous three months, and other survey data also pointing to slower growth.