News Release
The Times They Are A-Changin'
21 October 1998
In a speech to the National Council of Building Material Producers Autumn Luncheon, Mervyn King, the Bank's Deputy Governor, considers both the domestic and international environment, stresses that the MPC will watch carefully for any signs a of credit crunch and discusses the recent revisions to the earnings data.
Commenting on the MPC's remit Mr King said:
"The heightened aversion of financial institutions to risk has led to fears of a "credit crunch". As yet lending by UK banks has not been affect to any significant extent. The MPC will watch carefully for any signs of a credit crunch developing."
Commenting on the domestic economy, Mr King said:
"An issue of considerable importance is the state of the labour market. Since August, the estimates of this key economic statistic have been revised - not once, but twice. The good news - somewhat ironic given the amount of attention it attracted earlier this year - is that as a result of these revisions the "great bonus debate" of the summer has become a non-issue. Bonuses, we are now told, if anything, subtracted from, not added to, the growth of earnings in March and April of this year. The bad news, however, is that if before the revisions it was difficult to know how to interpret the impact of bonuses on earnings growth, it is, I think it is fair to say, now extremely difficult to know how to interpret any aspect of the earnings data."
"The revised data suggest that instead of rising steadily throughout last year, as the economy grew at above trend rates and the labour market tightened, the rate of growth of earnings actually fell. From a peak of 5.3% in February last year, earnings growth is now estimated to have slowed consistently until March of this year, when it reached a level of 3.9%. This deceleration in earnings growth coincided with a period in which, according to the Labour Force Survey, the labour market tightened considerably: employment rose by 360 thousand, unemployment fell by 320 thousand and the unemployment rate fell from 7.8% to 6.5%. Over the same period wage settlements accelerated. And the revised data imply that since March of this year, as the pace of economic growth has slowed, earnings growth has accelerated, from 3.9% in March to 5.2% in June."
"It is not easy, therefore, to reconcile the revised earnings data with other information on the labour market. I can promise you that the Bank, the Treasury, and the Office for National Statistics, will, as a matter of urgency, be working together to try to understand what is happening to earnings."
