LONDON (Reuters) - Britain should replace the Consumer Price Index as its main measure of inflation with another index that better reflects housing costs, according to a review published on Thursday.
The CPIH index includes a broader estimate of housing costs than the CPI, which currently forms the basis for the Bank of England's inflation target.
In recent years the CPIH has tended to be slightly lower than the CPI, though the two indices have been at the same rate since August.
The review, carried out for the UK Statistics Authority -- an independent state body -- recommended that Britain's statistics office "should move towards making CPIH its main measure of inflation."
CPIH incorporates owner occupiers' housing costs, based on equivalent rental values. Despite accounting for around 10 percent of household expenditure, they are excluded from the CPI.
The review also recommended ending the use of the Retail Price Index as a basis for contracts, including inflation-linked bonds issued by the government.
"The ... government should move away from selling gilts linked to the RPI, subject to consultation and assurance about the demand for CPI or CPIH-linked gilts," the review said.
However, the RPI could not be scrapped altogether given that it is used for 470 billion pounds of index-linked bonds, some of which are not due to be redeemed until 2068, it said.
The RPI lost its designation as a national statistic in 2013 because it no longer conformed with international standards.
The CPIH is also not currently considered a national statistic due to some concerns about the way it calculates housing rent.
The UK Statistics Authority plans to launch a public consultation on the review's recommendations in mid-2015 and to make a final response later this year.
Michael Saunders, economist at Citi, said a shift to CPIH in the coming years would probably not have much implication either way for monetary policy.
The review was led by Paul Johnson, who heads the independent Institute for Fiscal Studies, a leading British economic think tank.
(This story corrects fifth paragraph description of how CPIH measures housing costs)