Coffee House

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

25 March 2014

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).

Screen Shot 2014-03-25 at 14.21.58


Screen Shot 2014-03-25 at 14.23.29

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  • Frank

    I think that it is called a Potemkin economic recovery.
    Back-loading the cuts just shows cowardice. If we do face an economic wobble due to imposing eu wide sanctions on Russia and because China bogs its attempts to slow its credit surge, we are in for very tough times.
    The tories are very quick to say that Gordon Brown didn’t mend the roof in the good times, well the Coalition didn’t drain the boat when we had calm weather. Reducing the size and cost of government wasn’t an optional choice!

    • Dan Grover

      What calm weather? We’ve only had a handful of decent months of growth, and it was only this time last year that people were worrying about us going into recession. Our largest trade bloc – the Eurozone – is collectively emptying its bowels onto the cobblestones of Brussels. By all means, argue that we should have been cutting more *in spite* of this, but I think it’s disingenuous to say that we’ve had “calm weather”.

  • Daniel Maris

    I think you’d have to be blind and deaf hermit on a starvation diet and with a mental age of 10 to believe that inflation is really running at 1.7%.

  • Rockin Ron

    It is a sign of Tory nerves that they seek to harry Miliband. There is plenty of time for Labour to flesh out their plans. They should resist the urge to dance to the Tory tune. Also, I feel the media are a little bored and wanting to goad Labour into showing their hand. This would be a mistake this far away from the 2015 General Election.

    • Tony Quintus

      They are on the attack now because there is a vote coming up that matters, if Labour still come 3rd in the EU elections the Tories have a chance at an overall majority in’15, if Labour wins or comes a close, much less so. People do not vote for a loser, so the Tories are trying to make Miliband look as much of a loser as possible.

      • the viceroy’s gin

        …it won’t work, not with Call Me Dave around.

        • Tony Quintus

          He is far more popular than Red Ed

          • the viceroy’s gin

            …you’re looking at the wrong polls.

            • Tony Quintus

              Dave -9, Miliband -31, Clegg -44, Cameron with a lead of 18 points over Miliband for best PM.

  • Smithersjones2013

    Are earnings rising faster than inflation? NO! So these inflation figures are still no bloody good for the vast majority of people! Until people’s prosperity improves significantly to the point where it outstrips inflation (given the years of high inflation and the relative drop in people’s prosperity as a result) then the Tories have little to crow about…….

    • Tony_E

      Real terms increases in personal prosperity will only occur with real terms gains in productivity – and only from the manufacturing base (as the so called single market in services was never realised and most services are local).

      We are not making manufacturing gains yet on anything like the scale necessary to see living standards increases. And with the rest of the global economy hardly surging ahead, we don’t have the ready markets to rely on for our higher priced high end manufacturing (our real strength – specific large single value items and premium goods and design).

      This ‘government’ has not made anyone poorer really – the last government made them artificially feel wealthy for a limited time. All that has happened is that reality has seeped through. But that would have happened eventually whoever won the last election – the market is the great revealer of truths.

      • HookesLaw

        Correct; the Eurozone is still not growing and we read that output in China is faltering.
        Smithers suggests that govts can manufacture export markets. He talks rubbish. Its daft to pretend that the govt can protect people from the effects of past disasters.

        • Smithersjones2013

          That neither of you address earnings and instead conflate the issue with our propensity to export goods which has no direct logical relationship to earnings shows how bankrupt your arguments are.

          • Count Dooku

            The govt can directly influence inflation via the money supply and exchange rate.
            It can to some extent influence public sector earnings and taxation. It can’t however influence private sector pay which is the bulk of the country.

      • Smithersjones2013

        See below

    • Daniel Maris

      The 1.4% figure will be unbalanced by all those CEOs, bankers and others taking huge rises. It’s probably in reality closer to 1.1% for most people.

  • Kitty MLB

    Labour were clearly hoping the country would not improve ( party before country as usual)
    Well done again, our deficit slayer George, nearly everyone doubted him,
    but he ignored the caterwauling and stayed firm ( regardless of the ‘ we stopped the Tories’ gerrymandering from the lib Dems) people have been pointing
    the finger and not been using common sense. Improvement was always going
    to take a while.

    • Count Dooku

      George didn’t stick to his plan. He should have cut more.

      • Kitty MLB

        Well look at the amount of grief he got with the small amount of cuts,
        the gerrymandering from Labour and bleeding heart Lib Dums.
        He has done very well with the bad hand he had been dealt with.
        And I might add, that I am one of those loathed Right Wing Tories.
        But I agree, without the Lib Dems he would have cut more and much
        quickly. Also he would have instantly removed that spiteful, regressive and economically damaging 50pTax.

        • Count Dooku

          He went about this all wrong. The public think he’s cutting much, much, much more that he actually is. If you are going to get stick for cutting then do it early and do it fast.

          There’s a reason why doctors recommend that you don’t spend hours pulling out a plaster.

          • the viceroy’s gin

            Yes, well the whole point of this was marketeering for the Camerluvvies. There were no “cuts”. Spending increased, as was intended. The point was to make the Camerluvvie tribalists get all tingly of the “cuts”. Mission accomplished, apparently.

        • HookesLaw

          Osborne did the right thing – they have broadly back loaded the cuts and not thrown the baby out with the bathwater. Under the tories the cuts will continue into the next parliament with growth easing the pain.
          And apart from letting the regulators do their thing he did not spend more when the eurozone collapsed – he extended his timetable.
          In reality all other things being equal we should have been in this position 12 months ago, with the big drop in deficit coming in election year instead of the year after.
          As it is Osborne has kept employment levels high and created a million new jobs and at the same time cut hundreds of thousands of jobs from the public sector.

          • the viceroy’s gin

            …yes, you socialists have maintained the massive levels of spending, and massively increased the debt, as you fully intended. Well done, lad.

    • Rockin Ron

      We are borrowing £330,000 every day, £10bn every month, £120bn every year. That is no cause for celebration. George Osborne should have resigned if he had any sense of honour.

  • PT

    The CPI+Housing measure is even lower – 1.6%. Conditions are approaching near perfect for Cameron and Osborne, with inflation falling and house price growth rocketing.

    • the viceroy’s gin

      …sounds just like those glorious days of 2007, eh?

  • telemachus

    Will these figures make the poor folk ofvTower Hamlets struggling with month on month falling living standards feel better?

    • JoshuaCzajkowski

      It’s not about “feeling better”. It’s about actually getting better, unfortunately that means pain for many people, however it is needed. This country has been run by sentiment and emotion for far too long instead of logic and common sense, which is one of the reasons we got in this mess in the first place.

    • Joff


    • Kitty MLB

      Are these the children and poor folk ‘evil’ Tories are keeping malnourished to
      help fit them up the chimney.
      You will notice that councils under Labour control are always a lot worse off,
      imagine what it would be like if we let them loose on the whole country again.
      And you can stop that emotional blackmail nonsense, only action, and quick
      action gets results.

    • AB

      The poor folk of Tower Hamlets live within walking distance of areas with the highest employment opportunities pretty much anywhere in the world. The opportunities are there for those who wish to take them.

    • Colonel Mustard

      You always seem very concerned about the “poor folk” of Tower Hamlets. Why don’t you stand as their mayor and walk the walk instead of just talking the talk?

      • Shazza

        Tele would have to ‘revert’ to being a moslem – but then both socialism and islam are authoritarian, fascist ideologies so he should have no trouble conforming.

    • chudsmania

      Who cares ? Tower Hamlets isnt part of the UK that anybody recognises anymore. Benefits Street recorded here would have been a real eye opener.

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