Interest Rates: New Inflation Measure Will Force Rethink of Unsustainable Debt

12.00.00am GMT Thu 4th Dec 2003

Vincent Cable MP, Liberal Democrat Shadow Chancellor

Commenting on the Bank of England's decision to hold interest rates, and that this is the last time the MPC will use the Retail Price Index (RPIX) to measure inflation before the introduction of the Harmonised Index of Consumer Prices (HICP), Vince Cable MP, Liberal Democrat Shadow Chancellor, said: "The new inflation measurement is a small step being taken to converge with practice in the rest of Europe. It is a technical rather than political change, but has considerable practical importance."

"The new system will no longer capture housing market inflation and makes explicit that the Bank has no responsibility for monitoring and dealing with inflation in housing market. The big problem is that no-one is now responsible for house price inflation."

"The Chancellor must establish with the FSA ground rules on accepted measures of sustainable debt so that we don't have the disastrous boom and bust in the housing market that is ominously threatening.

"It will also not measure Council Tax rises which are the biggest current Government contribution to inflation. Council Tax is eating its way into the living standards of people, especially pensioners, and will now not be captured in official measurements.

"The Bank will no longer count Council Tax as inflation, but for households, the pain will be real."