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1.39 Inflation fell markedly to 0.5% in December 2014 and 0.3% in January 2015, triggeringthe first open letter for inflation falling more than 1 percentage point below target, publishedon 12 February 2015. 25 In its February 2015 ‘Inflation Report’, the MPC forecast that inflation islikely to remain low for the next year or so, mostly reflecting the recent falls in commodity andfood prices, before returning to target in 2 years’ time. 26 The Chancellor’s open letter to theGovernor of the Bank of England welcomed “that the MPC remains vigilant to both upside anddownside risks to its forecast and stands ready to act if these risks materialise”. 27Credit easing1.40 Since its introduction, the Funding for Lending Scheme (FLS) has helped to reduce bankfunding costs to historic lows and improve credit conditions for households and businesses,including small and medium-sized enterprises (SMEs). As of end-Q4 2014, participants have£55.7 billion of borrowing outstanding in the scheme to support lending to the real economy. 281.41 In December 2014, the Treasury and the Bank of England announced that the FLS wouldbe extended by 1 year to 29 January 2016. This extension will maintain support for lendingwhere it is most needed – for SMEs – and will provide certainty over cheap funding to supportlending, even in the event of negative shocks to bank funding conditions.Deficit reductionFiscal strategy1.42 The government inherited the largest deficit in post-war history as a result of the GreatRecession and unsustainable pre-crisis increases in public spending. 29 The IMF estimates that theUK entered the Great Recession with the largest cyclically-adjusted deficit of any major advancedeconomy, at 5.3% of GDP in 2007. 30 Unchecked, the historically high level of borrowing couldhave undermined fairness, growth and economic stability in the UK. In 2010, the governmentset out medium-term fiscal consolidation plans to return the public finances to a sustainablepath.1.43 The government is making significant progress in delivering its fiscal consolidation. Publicsector net borrowing as a percentage of GDP is forecast to have halved between 2009-10 and2014-15. 31 The latest data from the IMF shows that, between 2010 and 2013, the governmentreduced the structural deficit by more than half. The structural deficit fell by 4.6% of GDPover this period, a larger absolute reduction than any other country in the G7. 32 When thisgovernment came into office around 1 pound in every 4 being spent was borrowed. 33 In2015-16 the Office for Budget Responsibility’s (OBR) forecasts show that only 1 pound in every10 spent will be borrowed. 341.44 The government is forecast to meet its new forward-looking fiscal mandate in the thirdyear of the forecast period, which is currently 2017-18, having reduced the cyclically-adjustedcurrent budget deficit from its peak of 4.8% of GDP in 2009-10 to 2.6% of GDP in 2013-14. 35The supplementary aim for public sector net debt to fall as a share of GDP in 2016-17 is forecastto be met a year early with debt falling as a share of GDP in 2015-16. This is the first time publicsector net debt has been forecast to fall as a share of GDP in 2015-16 since Budget 2012.25Open letter from the Governor of the Bank of England to the Chancellor of the Exchequer, February 2015.26‘Inflation Report’, Bank of England, February 2015.27Open letter from the Chancellor of the Exchequer to the Governor of the Bank of England, February 2015.28‘Funding for Lending Scheme usage and lending data publication – Q4 2014’, Bank of England, February 2015.29‘Public Sector Finances’, ONS, January 2015.30‘World Economic Outlook’, IMF, October 2014.31‘Public Sector Finances’, ONS, January 2015; ‘Economic and fiscal outlook’, OBR, March 2015.32‘World Economic Outlook’, IMF, October 2014.33‘Public Sector Finances’, ONS, January 2015.34‘Economic and fiscal outlook’, OBR, March 2015.35‘Public finances databank’, OBR, March 2015.18 Budget 2015