James Forsyth James Forsyth

Today’s inflation fall means the Tories can have their interest rate cake and eat it too

Today’s inflation figures bring more good news for the government. CPI inflation is now down at 1.7 per cent, the lowest rate in four years and below the Bank of England’s target – so making it less  likely that interest rates will rise before the next election. Inflation as measured by RPI is 2.7 per cent, down from last month’s 2.6 per cent. With Osborne’s pensioner bonds, which will offer 4 per cent return, the Tories can now have their interest rate cake and eat it.

Adding to the buoyant mood in coalition circles is that Labour still hasn’t worked out its critique of the Budget. I’m told that Labour have not yet informed the government whips which Budget resolutions they intend to vote against. Normally, this information would have been relayed last night.

Ed Miliband has always liked to take his time over big decisions. But the Tories are now trying to harry him into making them. The danger for the Labour leader is that him taking his time comes to be seen as him drifting. ​

UPDATE: The controlled inflation isn’t a blip. The below graphs from last week’s OBR report show market expectations for CPI inflation and interest rates. The second graph shows both the expected Bank of England base rate (above) and the effective rate, adjusted for the effect of QE (below).

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