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mpc: 6 increase in UK earnings growth looked less dramatic when an adjustment was made for hours ­growth in nominal earnings per hour had been flat, but at a fairly high level of around 5½%, forsome time. 20 In contrast to the earnings figures, the three-month AEI-weighted series for pay settlements hadfallen slightly over the past month, so the latest settlements data could not account for the rise inearnings growth. The two series implied that there had been a further rise in pay drift, which wouldbe consistent with higher bonuses and/or other factors. This measure of drift had been surprisinglystrong over the late 1990s relative to measured productivity growth. Companies continued to reportthat pay increases were warranted by productivity growth and profits, and that pay deals were oftenself-financing with unit costs kept in check. 21 There were a number of ways in which to reconcile the apparent contradictions between whatindividual companies said and what was recorded in the earnings data. First, one possibilitycontinued to be that both aggregate output and productivity were under-recorded. Although thisprobably had little implication for the output gap as the data for both supply and demand would beaffected, there would be lower unit labour costs than currently recorded. However, for this to besignificant the under-recording of the level of productivity would have to be increasing throughtime, which was unproven, but possible in the light of US experience. Second, it was possible thatfor some companies the falls in input prices over recent years had financed increases in labourcosts. In that case, overall costs would rise or drift would fall (to the extent it was profit related)given that input prices were now rising. Another possibility was that a small increase in labourcosts in each individual company had only a small effect on its total costs, since labour costs weregenerally a small fraction of most companies' total inputs. But this could aggregate to a largeincrease in costs, once intra-firm transactions were netted out and one looked at value addedaggregated across the economy as a whole.

Prices and costs

22 The oil price had risen further since the Committee's previous meeting, and had touched$30 per barrel. It was well above the profile that had been assumed in the February InflationReport projections, though it was possible that it could still come down broadly in line with theforecast path. There was general uncertainty ahead of the next OPEC meeting in March. 23 Manufacturing input prices were volatile from month-to-month, but seemed to be rising byaround 10% at an annual rate. Weighted costs in manufacturing (for example, including labourcosts, raw materials and other inputs) now seemed to be rising by around 2½% on an annual basis,and at some point might push up output prices unless a further downward squeeze in profit margins