1. A method of motion estimation in a digital video compression system comprising the steps of: segmenting the target picture into a grid of macroblocks; for each macroblock choosing for test a plurality of candidate motion vectors according to an implemented search criteria, for each candidate motion vector calculating a residual error between the macroblock and a reference macroblock displaced by a current candidate motion vector, for each candidate motion vector estimating a cost of coding said current candidate motion vector dependent upon a difference between said candidate motion vector and a motion vector from an immediately previous macroblock including separately determined cost of coding a horizontal difference of motion vectors and cost of coding a vertical difference of motion vectors, selecting one candidate motion vector providing a least number of bits to encode the macroblock dependent upon said calculated residual error and said cost of coding, and encoding the macroblock using the one selected candidate motion vector.