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Low unemployment fuels inflation fear.

Average earnings growth rose to 5.5 per cent in the three months to December, confirming Bank of England fears that low unemployment is starting to feed through into potential inflationary pay increases.

It is a substantial jump from the 4.9 per cent recorded in the three months to June, and a full point above the Bank's "comfort level".

The Bank's response to this increase is expected to be on the agenda when it publishes its latest inflation report this morning.

Part, but not all, of this sharp rise has been attributed to Millennium-related payments and bonuses in financial services. But March is usually the peak month for City bonuses.

The Confederation of British Industry urged the Bank's monetary policy committee to resist the temptation to jump to a hasty conclusion that more interest rate increases are needed to contain nascent inflation.

"The MPC would be wise to wait for more information before making an assessment of the trend," said Mrs Kate Barker, the CBI's chief economic adviser.

"There are clearly special factors surrounding this month's figures. The increase may prove a matter of concern, but at the moment it is hard to see how much of the rise is attributable to one-off Millennium bonuses.

"It is encouraging that manufacturing employment is flattening out, but again it would be wrong to say that firms are out of the wood."
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Author:Economics, NEVILL BOYD MAUNSELL
Publication:The Birmingham Post (England)
Date:Feb 17, 2000
Words:230
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