17 January 2001, 11:26  UK headline average earnings growth is seen sticking

LONDON (MktNews) - UK headline average earnings growth is seensticking at 4.2% in November, analysts said Tuesday. The medianforecast calculated from a survey by Market News International seesthe headline average earnings rate (a 3-month moving average) stayat 4.2% in November. Forecasts again range between 4.0% and 4.3%.October headline earnings growth crept up slightly to 4.2% from 4.1%in the previous month, but earnings growth for the month of Octoberalone was at 4.1% lower than the 4.2% recorded in September, mainlya result of lower bonuses than a year earlier. Bonuses depressed thenon-seasonally adjusted October earnings growth rate of 3.9% by 0.5percentage points compared with only 0.2 percentage points inSeptember. Analysts pointed to evidence of basic pay settlementslevelling off in November which, together with an expected negativecontribution from bonuses similar to that in October, should keep theheadline earnings rate steady or could even push it slightly lower. UKeconomist at CSFB Robert Jukes argued "Settlements have beenlevelling off, and possibly even softening in manufacturing,suggesting that pay growth excluding bonuses should remain oughlyflat in November. Assuming a similar negative bonus contribution toOctober, we expect average earnings to come in at 4.2% in both thelatest month and the headline three month moving average." Payresearchers IRS reported that average pay deals dipped to 3.0% in thethree months to November, after 3.1% in October (revised from 3.2%).Looking ahead to the next few months, headline earnings growth islikely to ease back temporarily as a result of favourable base effectsfrom last year's Millennium payments. But the real test will comesometime in the first quarter this year. "Q1 will be crucial for wagesettlements (around 25% of all wage deals are announced in Januaryalone), particularly with headline inflation running at above 3%," saidGeorge Buckley, UK economist at Deutsche. Analysts also noted thatthe pace of labour market tightening has slowed recently with claimantcount unemployment falling by only 5,300 in November, after a 3,900rise in October. For December, the MNI median forecast predictsanother small monthly fall of 5,000. "While we look for a furthermodest decline in unemployment in December, it would appear thatthe peak in the labour market is fast approaching, and expectunemployment to rise over the course of 2001," Buckley said. Onlyone economist was expecting a small rise in unemployment inDecember. Michael Hume, UK economist at Lehman Brothers, said heexpects this to continue over the next three to six months, with therate going up to 3.8% from currently 3.6%. The labour market data willbe released on Wednesday, December 17, at 09:30 GMT.

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