Figures will cast doubt on rate rise

THE introduction of a new way of measuring inflation is likely to cast embarrassing doubts on the Bank of England's recent decision to raise interest rates.

Figures on Tuesday are expected to show that the Bank's present inflation yardstick, the RPIX measure, was above its 2.5% annual target for October.

But the new Harmonised Index of Consumer Prices (HICP), which the Bank will follow from next month, is forecast to be well below its likely 2% annual target rate.

'This will be a big presentational problem for the Bank,' said Ross Walker, economist at Royal Bank of Scotland. 'People will ask why rates are going up when the new inflation index is below target.'

Britain already publishes both inflation measures, and because of the looming changeover, all eyes will be on the HICP reading.

Trevor Williams, economist with Lloyds TSB, said: 'RPIX is expected to be 2.6% or 2.7%, but HICP was 1.4% in September and could drop to 1.3%in October.'

The Bank raised the base rate to 3.75% from 3.5% this month and warned that more rises were on the way.