A computer-implemented method for video signal encoding with motion estimation, the video signal comprising frames divided into prediction units, the method comprising the steps of: determining (401) the current prediction unit (PUX) to be encoded, creating (407) a list (LMVXpred) comprising motion vector predictions (MVPUY) from neighboring units (PUY), selecting (411) from the list (LMVXpred) the motion vector prediction which is the best according to a predetermined cost function for encoding the current prediction unit (PUX), using (412) the selected prediction number to encode the current prediction unit (PUX). The method further comprises the steps of: for each neighboring unit (PUY), checking (403) whether the neighboring unit (PUY) has been encoded in the MERGE and not SKIP mode and if so, determining (404) the reconstruction motion vector (MVPUYrec) for that unit (PUY) as a motion vector which minimizes difference between reconstructed prediction block (PUY) and a block in a reference frame pointed by this motion vector, and assigning (405) the reconstruction motion vector (MVPUYrec) as a motion vector (MVPUY) to that unit (PUY) to be used in creating (407) the list (LMVXpred).