Further Bank of England base rate cuts could be on the cards if the Treasury drops the Retail Price Index (RPI) as a measure of inflation, according to Inter Alliance. Gordon Brown has indicated that his department is looking to adopt the Harmonised Index of Consumer Prices (HICP) in lieu of the RPI.
Charles Ansdell, senior technical adviser at Inter Alliance, said: ‘The adoption of HICP will leave the way open for further interest rate cuts. HICP is much lower than our rate of inflation according to the RPI. This will give the Monetary Policy Committee more space to make interest rate cuts.’
He added: ‘The Treasury is talking of bringing this in as early as October, and almost certainly will, as it suits this country economically and it is part of the necessary economic alignment for us to join the euro.’
The HICP is the favoured measure in the euro zone. It does not include housing costs and smoothes out fluctuations in data. Last month the RPI inflation figure was 2.9%, a fall of 0.1%, but the HICP stood at 1.2% after removing the housing market.