The Budget Red Book not only forecasts a rising growth rate in the second half of the present Parliament, but also forecasts rising inflation and rising interest rates.
The forecasts for the Retail price Index, the older view of inflation, says that this measure of inflation will hit a low of 2.3% in 2013, will rise to 3.6% in 2015 and to 4.0 the following year. Wages will also be rising , reaching a growth rate of 5.6% in cash terms by 2016.
Against this background the forecast also assumes rising interest rates. Gilt rates are estimated to rise from a low of 2.3% in 2011-12, to 3.5% by 2014-15 and 3.8% the following year. The CPI stays on target despite these changes.