Brown may delay inflation target switch

The controversial decision to change the inflation target that the Bank of England uses to set interest rates may be delayed a month, it emerged yesterday.

The Treasury is considering postponing the pre-Budget report (PBR) until December because of the weight of government business in late November when it traditionally takes place. This year's PBR will include an announcement of a switch to the European-style HICP inflation measure from the current RPIX system as well as a new target.

A delay into December could come too late to allow the change to take effect before the Bank's decision on interest rates on 4 December. Some traders said delaying the change could extend the window of opportunity for the Bank to raise rates before the change comes in. Ben Levett, at 4CAST, said: "This does mean that this complication will not directly cloud the November inflation report - and the case for a November hike call can be made." But he doubted it would have any impact on the rate decisions. David Hillier at Barclays Capital said: "The change in the inflation target should still prevent rates from rising until next February," said .

Gordon Brown, the Chancellor, announced in June he would instruct the Bank to follow HICP, which currently measures inflation as 1.4 per cent, rather than RPIX which is currently twice as high at 2.9 per cent. The key difference between the two rates is that HICP - harmonised index of consumer prices - takes no account of house prices, while RPIX - retail price index excluding mortgage costs - does. This has caused concern at the Bank. Mervyn King, the Governor, has hinted he would prefer it were delayed until house prices can be included.