George Osborne is right. News that the main measure of UK inflation turned negative for the first time since 1960 isn’t a cause for concern. Yes, prices in April fell, which means deflation is official – and that hasn’t happened for over half a century. As the Chancellor says, though, UK deflation is far from entrenched and will rapidly reverse.
I’m more worried about early but significant signs of distress on Western sovereign bond markets. Our newly elected Government should be worried too. The British state is still borrowing very heavily, servicing an ever-growing debt pile. And if the UK gilts market goes haywire, with yields rising as investors demand higher returns, that would upend the economic recovery and put a somewhat different gloss on the Tories’ second term.