Earnings growth fuels inflation worries

INTEREST rate jitters resurfaced today after news of a pick-up in wages growth stoked worries about inflation. Big City bonuses pushed earnings growth in the three months to October to 4.1% from 3.8% in the previous three months. Stripping out bonuses, regular pay growth rose from 4.3% to 4.4% - just below the 4.5% ceiling the Bank of England deems compatible with its 2% inflation target.

It is the third day in a row that news on inflation has exceeded expectations. On Monday, data showed core producer prices rising at the fastest rate for eight years. Yesterday brought news that inflation shot up from 1.2% to 1.5% in November.

Howard Archer, economist at consultants Global Insight said: 'The Bank is likely to be getting a bit more twitchy about inflation. The odds appear to be moving back towards the Bank's next move being a hike in interest rates although much will depend on housing market developments.'

The City is reassessing its long-held view that, at 4.75%, rates have peaked. The wages pick-up came as unemployment fell to a fresh 29-year low. The number of people out of work and claiming the jobseeker's allowance fell 3,400 to 833,200 in November, the lowest since 1975.

On the alternative International Labour Organisation measure, unemployment posted a decrease of 29,000 to 1.388m in the three months to October. Neville Hill, an economist at Credit Suisse First Boston, said: 'Given the tightness of the labour market, it is not surprising that wage growth is rising, and we would expect it to continue to do so in coming months.'