The National Statistics office says Britain should keep its retail prices index as a measure of inflation because it has “significant value” for investors and pensioners. Here economists and strategists give their view.
Philip Shaw, economist at Investec
"We are surprised that the ONS has rejected the opportunity to fix the well discussed flaws in the RPI and are a little dismayed that we will have yet another measure of inflation to contend with."
Azad Zangana, European economist at Schroders
"The ONS’ decision to keep the RPI methodology unchanged comes as a shock to investors.
"If the committee was purely focused on the statistical merits of the proposed changes, then there could have been no doubt that the RPI index methodology needs reform.
"This is apparent from the half-hearted apology from the ONS in its opening statement admitting to the substandard quality of the index.
"In terms of our forecast, we will now revise up our RPI forecast to take into account today’s announcement. Our forecast for 2013 RPI inflation is now 3pc against our previous forecast of 2.5pc, while our 2014 forecast is now 3.6pc, versus our previous forecast of 2.6pc."
"The decision not to change RPI has seen practicality and consistency win out over mathematical accuracy.
"This represents a pragmatic decision by ONS which balances practicalities with principles.
"At the margin this is positive for the UK's credit rating."
Neil Prothero, lead UK analyst, at the Economist Intelligence Unit.
"It’s bad news for taxpayers in general, who will continue to face a variety of higher RPI-linked costs, such as commuter fares, utility bills, fuel and alcohol duty, and student loans.
"It’s a blow also to the chancellor, who would have enjoyed a lower interest bill on the country's large public debt stock had the RPI measure been changed, and to those employers paying into RPI-linked final salary pension schemes.”
Mike Amey, PIMCO managing director and portfolio manager
"We believe the National Statistician has made the right decision
"By retaining the original structure for the RPI, we can now move on in the knowledge that the contract for holders of index linked bonds will be upheld.”
Marc Ostwald, strategist at Monument Securities
"Well this is a big surprise relative to what markets had been discounting, and appears likely to prompt a 10-15 basis point drop in Index-Linked yields.
"What is very noticeable is the opprobrium that fund managers heaped on the whole process, and it seems likely that the threat of a raft of legal challenges left the ONS no option other than to make this smaller than expected change.
"Eminently Mr Osborne now needs to find somewhere else to scrimp and save, and equally this adds to the impression that a UK credit rating downgrade is now inevitable."
Philip Bray, Investment Sense
"The announcement that the way RPI is calculated will not be changed is good news for some retirees who are already having to contend with huge financial issues.
"It is widely recognised that pensioners suffer inflation at higher rates than either of the official CPI (Other OTC: CPIC - news) or RPI figures; in many respects, then, today was a missed opportunity to introduce a measure of inflation specific to older people."
"RPI and CPI, which are used by the majority of pension schemes, are inadequate to offset the impact of inflation on pensioners.
"This will be welcome news for all those dependent on pension benefits, who might otherwise have suffered a drop of between 0.5pc to 1pc a year in their income (in real terms).
"It will probably come as a disappointment to employers sponsoring final salary schemes. A reduction in the rate of RPI would have reduced some pension scheme liabilities; this in turn would have reduced the amount of money which employers have to pump into these schemes to reduce their deficits."