LONDON, Nov 18 - Britain's underlying rate of inflation, or RPIX, unexpectedly fell back 0.1 percentage points to 2.7 percent last month as house prices and tuition fees rose by less than a year ago. The Office for National Statistics said RPIX, which excludes volatile mortgage interest payments, was unchanged on the month to give the 2.7 percent annual rise, the slowest since January and defying expectations that it would remain at 2.8 percent. Gilts and short sterling interest rate futures reacted swiftly to the data, paring earlier losses on the perception that slower inflation would reduce the need for the Bank of England to add to this month's interest rate rise in a bid to cool the economy. "This is not a bad result. If anything, this might be marginally supportive to the idea that maybe the MPC (Monetary Policy Committee) will keep interest rates unchanged in December," said Adam Chester, economist at Halifax. "But I don't think it is going to have a significant influence one way or the other. More importantly, it's going to be what consumer spending data shows ahead of Christmas." The inflation rate remained above the Bank of England's government-set target of 2.5 percent for the 12th month running, however. The overall headline rate of inflation, or RPI, rose 0.1 percent on the month to stand 2.6 percent higher than a year earlier, the smallest rise in almost a year.
HICP STEADY AS TARGET SWITCH NEARS
But the harmonised index of consumer prices (HICP), which excludes house prices and council tax, remained steady at just 1.4 percent for the third month running. The BoE will have to switch in January to targeting HICP and Chancellor of the Exchequer Gordon Brown will announce in his pre-budget report on December 10 what the new target will be. Sources have told Reuters it will be 2.0 percent. The ONS said the largest downward effect on the RPI index was housing due to the housing depreciation component rising less slowly than a year ago. Another large downward effect came from household services as both university tuition fees and estate agent fees rose by less than a year ago. Leisure services also had a downward effect due to a further fall in the cost of foreign holidays in contrast to an increase a year ago. The largest upward contribution came from motoring expenditure as second hand car prices fell less than a year ago. The largest downward effect on HICP came from university tuition fees. There was good news in the RPI breakdown as inflation in the huge services sector fell back to 3.4 percent, the lowest since March 2001, helped by a slowdown in the "non-shop services" category which includes the foreign holidays and tuition fees. Non-shop services inflation fell to 3.7 percent, the lowest since March 1997.//