MNI Five Things: UK Chancellor Hammond Cautious On CPI Switch

-Hammond Says Direction Of Travel Is Away From RPI, Ultimately To CPIH

By David Robinson

     LONDON (MNI) - Chancellor of the Exchequer Philip Hammond gave evidence

Wednesday to the Treasury Select Committee (TSC). Here are five things that we

learnt:

     -Philip Hammond confirmed that the government does want to move away from

the much criticised inflation measure RPI, which is no longer an official

statistic. He said that getting away from RPI was "the direction of travel." RPI

is used as the reference point for index linked gilts as well as other things

such as student loans and train fares.

     -Hammond was not prepared to comment on whether his preferred option is to

go to CPI first or to the Office for National Statistics preferred measure,

CPIH. He said that CPIH was the favoured measure but it needed time to establish

a track record. From a gilts perspective, market participants have raised

concerns that a short period of CPI issuance before moving to CPIH could raise

liquidity problems. He repeatedly refused to be drawn, however, when questioned

by lawmakers on whether he wanted a one or two step move to CPIH.

     -Hammond's comments made clear that no large scale move from RPI to CPIH is

imminent. He said that no "wholesale" shift was being planned and that any

change would carry fiscal costs.

     -The next Budget could include estimates for the effect of a Brexit exit

deal, but it is going to be tough to do in time and the timescale is tight.

Hammond said that the Budget would be delivered before the Christmas

parliamentary recess. He ruled out delaying it until early 2019.

     -On Wednesday the Office for Budget Responsibility (OBR) highlighted the

formidable challenge of trying to incorporate any Brexit exit deal into the

Budget arithmetic. The TSC published a letter from the OBR in which the official

fiscal forecaster said it could include a Brexit deal struck in October in a

December Budget, but much would depend on how detailed the deal was. Chote went

on, however, to highlight the formidable challenge posed by trying to include

any Brexit detail, given the workload involved and the uncertainty over how much

detail would be in the deal.

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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