We still don’t feel better off. The fall in inflation is obviously welcome and, taken together with the unemployment figures this week, is expected to have cleared the way for the Bank of England to shave a quarter-point off rates today, to 3.75 per cent.
Sterling and gilt yields fell on the expectation of lower borrowing costs, and the inflation figures were greeted with glee on the stock market, where banks, housebuilders and insurance companies rallied in response.
Without wanting to be a Christmas killjoy, it is best not to get over-excited.
At 3.2 per cent, inflation is still well above the Bank of England’s 2 per cent target. The Office for Budget Responsibility is forecasting a drop to 2.5 per cent next year, but that may prove optimistic.
A return to rock-bottom interest rates does not look to be on the cards. Prices are increasing at a slower rate, but they are still going up – and this is against a backdrop of rising unemployment and cost-of-living pressures.
Not least among the latter is Rachel Reeves’ decision to extend the freeze on tax allowances and thresholds by three years, to 2031.
Stealth raid: Rachel Reeves has extended the freeze on tax allowances and thresholds by three years, to 2031
That sneaky manoeuvre means wage-earners have less spending power in real terms once inflation is accounted for.
If the freeze remains in place, she will have purloined £8bn from our pockets and diverted it into Treasury coffers. Retailers have been discounting heavily in the run-up to Christmas.
The chief executive of discount grocery chain Lidl reports that customers have been starting festive purchases earlier to spread the expense.
Even so, food inflation – though down – is still at 4.2 per cent, and with retailers’ costs rising it is an open question how long they can continue to absorb the hit to profit margins.
Unsurprisingly, survey data from the British Retail Consortium shows consumers lack confidence in the economy and expect to spend less in the shops in the coming months.
The real value of savings also remains under pressure, at a time when small investors have been transferring large sums out of US tech funds into cash and other lower-risk alternatives.
The problem for Reeves is that few, if any, voters will actually feel better off.
Cycle lane
Donald Trump may be furious with the BBC, but I am a huge fan of the 6.15am business slot on Radio 4’s Today programme.
I was particularly pleased to hear James Harrison, the boss of Cycle Pharmaceuticals, a small Cambridge life sciences company, talk about his recent $15million (£11.2million)deal to take over a US firm, when normally it is the other way around.
Cycle has just rescued New York-based Applied Therapeutics following an earlier takeover of Banner Life Sciences, another US company.
Harrison, a Cambridge graduate, founded Cycle in 2012. It specialises in treatments and care for rare diseases in children.
He is on a mission to prove fast-growing pharma companies do not have to move to the US to thrive.
It is privately owned, but Harrison has promised that if it does float, it will do so in the UK, despite making its revenues in the US.
He says he takes a long-term view because he wants to treat children with rare diseases – some as young as a day old – for their whole lifetimes.
How can he do this when others seem unable or unwilling? Because he has not let private equity take control, and because Cycle makes a healthy profit.
Labour politicians, take note: profit is not a dirty word. Enlightened capitalism is the way forward.
Mob rule
Turning to those who are less committed to the UK, a story is doing the rounds in the City that some wealthy individuals who fled to Milan to avoid British wealth taxes have found themselves facing offers they cannot refuse.
These are said to come from representatives of ‘southern Italian business interests’, who suggest to arrivals that they use some of the cash they have saved on UK taxes to take out a large insurance policy.
The tale has the tang of an urban myth – but it is too good not to share.
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