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mpc: 5 increase in prices would have to slow substantially from current rates over the next two years if theprojection in the February Inflation Report was to be met.

The labour market

16 There was little news in the data published on labour market quantities this month. The LFSdata for employment were likely to be revised up in April, with revisions spread over a number ofyears. The implications for other data ­ such as productivity ­ were not clear. 17 There had been a sharp rise in earnings growth in December. It was interesting that the rise inearnings growth was not restricted to the private service sector, as there had been a marked increasein manufacturing too. There were two main questions. First, how much weight should be placedon the December number in gauging the underlying growth rate? Second, what did it imply aboutthe underlying determinants driving both costs and prices, and also consumption, and henceaffecting the outlook for inflation? 18 Some of the marked rise in annual earnings growth in December probably related to bonuses.But because of the change in the ONS's survey form early last year, it was not yet possible to get aclear view on the contribution from bonuses to the change in the annual rate of earnings growth. Ifit related to bonuses, it would be sensible to smooth the effects. Since it was possible that part ofthe bonuses related to millennium preparation and working, it was also possible that significantincreases in earnings might be recorded for some months to come, and that consequently the annualrate of growth might not decline and even rise in January. One suggestion was that some of thepayments might be millennium-related `loyalty' bonuses, which were negotiated some time agowhen companies feared potentially large effects from the Y2K computer problems. If so, thesepayments might not be directly related to past profits, as in the case of more traditional bonuses,and hence would represent an additional cost to the firm, albeit a one-off cost. In any event, thesebonuses would be paid to the household sector, but it was uncertain whether households wouldconsume only the annuity value of the addition to their wealth. Even if they did, `saving' throughpurchases of consumer durables would add to aggregate demand. More information would beneeded, but taken at face value the latest earnings data were higher than the starting point forearnings growth assumed in the February Inflation Report. 19 The contrast between the level of US and UK nominal (and real) earnings growth was quitemarked, especially given that recent rapid productivity growth might warrant higher real earningsgrowth in the United States, and the fact that the millennium effects on pay might have beenexpected in the US as well. Although UK productivity growth was rising, it was lower than in theUS and seemed unlikely to explain the entire rise in earnings growth over recent months. The