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mpc: 20 A44 The labour market picture had remained similar to recent months. Although little change to recent settlements had been reported, there had been an increase in the number of contacts indicating that negotiations had become more difficult to resolve recently. In some cases employees had reportedly reacted to higher petrol prices and tax increases. Pressures on the total pay bill had continued to increase in the construction and service sectors. A45 The Agents had conducted a survey of UK firms regarding the pace of consumer spending in recent months. The results had shown that more than half of those firms surveyed in the retail goods, service and motor vehicle sectors reported that recent sales value growth had been lower than expected. Motor vehicle sales had been the weakest relative to expectations. Reasons for the lower-than-expected outturn had included some temporary factors (such as poor weather), but had also indicated some weakness in consumer demand. For motor vehicles, the key factor had been the impact uncertainty surrounding the review of UK car prices. Firms had also been asked about their expectations for annual sales value growth over the next three months. On balance, the results of the Agents' survey had suggested very little change to the current pace of growth. Car dealers were expecting competition issues to be resolved in the near future. A46 Firms had also been asked about recent price discounting relative to a year ago. Over half of the respondents reported that the extent of summer `sales' this year was slightly greater or significantly greater than last year. This was particularly evident for motor vehicles, but also for retail goods.

VII

Market intelligence

A47 Market participants' expectations of official UK interest rates had risen slightly since the July MPC meeting. Two-week forward rates derived from the gilt market had risen by up to around 15 basis points at the 1-2 year maturity. The majority of those polled in the latest Reuters poll of City economists thought that the MPC would not raise rates in August, but the poll had shown a mean expectation that rates would be at or above 6¼% by year end.