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An improved methodology for incorporating rental prices into UK statistics points to slightly quicker price growth at a time when policymakers are battling to bring inflation down to the 2 per cent target.
The new methodology from the Office for National Statistics, which will be used in official inflation data from March next year, doubles the number of rental prices used to produce the figures to about 500,000 a year.
Had it been used in recent years, the new method would have driven a slightly quicker pace of overall inflation. Average annual growth in rental prices between January 2016 and October 2023 is estimated at 2.8 per cent, up from 2.1 per cent under the existing method.
That would have lifted the average annual growth in the overall consumer prices index from 3.4 per cent to 3.5 per cent over the same period.
The changes will add to the complex statistical picture facing Bank of England rate-setters as they try to assess how persistent inflationary pressures are in the economy.
While the rate of price rises slowed sharply to 4.6 per cent in October, it remained more than twice the 2 per cent rate targeted by the BoE. The central bank has increased rates to a 15-year high of 5.25 per cent to tame inflation, but it is still concerned about underlying price pressures.
The ONS has also been trying to improve the quality of its labour force statistics as it struggles with low response rates to its surveys.
Preliminary and “experimental” data under the ONS’s new survey suggests the UK unemployment rate fell to just 3.5 per cent in the spring, much lower than the official reading, according to figures released by the agency recently.
The new inflation numbers are part of a wider effort by the ONS to improve its consumer prices statistics, as it identifies new sources of data and improves collection methods.
The project started with enhancements to the gathering of rail fares, and is now continuing with the overhauled private rental statistics and second-hand car prices.
The new rental price data are based on roughly 500,000 data points a year. They suggest that, between January 2015 and October 2023, the strongest rental growth in Scotland was registered in greater Glasgow, with an increase of nearly 64 per cent. The steepest falls were in Aberdeen and the shire, at nearly 19 per cent.
In England and Wales, Bristol recorded the biggest rise of 60 per cent, followed by South Gloucestershire at 57 per cent and Salford at 53.5 per cent.
The new statistics will be introduced into the CPI reading — alongside an alternative inflation measure that includes owner occupiers’ housing costs and also the retail prices index — from February 2024, meaning it will be published first in March.
The new estimates of second-hand car prices are based on data from Auto Trader. Whereas the ONS previously used 105 prices of cars of various ages, it said it would now use 300,000 monthly prices quoted from the online car marketplace.
The figures show petrol car prices fell 0.8 per cent in the past year, compared with a fall of 1.7 per cent for diesel car prices. But the new data would have no overall impact on the CPI, the ONS said.
