Inflation falls as Eat Out to Help Out scheme pushes down prices

September 16, 2020 @ 9:31 by Steven Hugill

The UK inflation rate dropped to a near five-year low in August, according to new figures.

Data released today (Wednesday, September 16) shows the Consumer Prices Index (CPI) fell to 0.2 per cent last month.

The number was down from one per cent in July.

The fall, documented in Office for National Statistics (ONS) findings, was mainly attributed to the Government’s Eat Out to Help Out venture, which pushed down restaurant and café prices.

The scheme, launched by Downing Street to help catalyse high street spending following the COVID-19 lockdown, offered 50 per cent discounts on meals worth up to £10 during set days of the month.

The ONS also pointed to an unprecedented fall in air fares during August and a coronavirus-provoked lack of traditional summer clothing price rises as additional factors to the change in the inflation rate.

However, the ONS said there was some upwards pressure in the period, with the largest, partially offsetting, contributions coming from games, toys and hobbies, accommodation services, road transport services and second-hand cars.

Jonathan Athow, ONS deputy national statistician for economic statistics, said: “The cost of dining fell significantly in August, thanks to the Eat Out to Help Out scheme and VAT cut, leading to one of the largest falls in the annual inflation rate in recent years.

“For the first time since records began, air fares fell in August as fewer people travelled abroad on holiday.

“Meanwhile, the usual clothing price rises seen at this time of year, as autumn ranges hit the shops, also failed to materialise.”

Reacting to the figures, Howard Archer, chief economic advisor to the economic forecasting group EY ITEM Club, said inflation could remain around zero per cent for the rest of 2020 as consumers – hit hard by the impact of COVID-19 on livelihoods and associated disposable income – remain watchful.

He said: “August’s inflation rate may well prove the low point, especially as the Eat Out to Help Out scheme has now ended, (but) the EY ITEM Club suspects inflation will hover just above zero per cent for the rest of 2020.

“While the economy is seemingly recovering well in this third quarter after its record second quarter contraction, significant uncertainties remain about the longer-term outlook and consumers look likely to be relatively cautious in their spending after the release of some pent-up demand.

He added: “The near-term fundamentals for consumer spending look challenging.

“Many people have already lost their jobs, despite the supportive Government measures, while others will be worried that they may still end up losing their job once the furlough scheme ends in October.

“Additionally, many incomes have been affected. Limited earnings will also have a dampening impact on inflation.

“The EY ITEM Club expects inflation to start rising early on in 2021 as the temporary VAT cut ends in mid-January.”

Share