Days of near-zero interest rates look to be over for good

'The deficit from Gordon Brown's time has never been closed'

- Ross Clark

NOTIONALLY, this week’s fall in inflation is good news for consumers, house-buyers and the economy in general. But it doesn’t feel that way. The fall in the Consumer Prices Index (CPI), from 3.4 per cent to 3.2 per cent, was less than many economists were expecting, and the markets had priced in.

It means that the expectations for interest rates have shifted. Hopes of a rate cut in May have now been all but dashed. It looks as if the earliest we can expect a cut is now June, and we may have only two, not three rate cuts, this year.

Next month, there should be a more substantial fall in the CPI as last year’s stiff rise in energy prices drops out of the figures. Anything not closer to the Bank of England’s target of two per cent will be a shock. But the wider picture is that the inflationary beast remains far from being slain. It is merely slumbering, just waiting to be prodded with a stick before roaring back to life.

The energy crisis precipitated by Vladimir Putin’s invasion of Ukraine has abated as Britain and other European countries find sources of oil and gas to replace those from Russia. Yet the situation in the Middle East could quickly deteriorate following Iran’s failed drone attack on Israel last weekend.