The UK’s inflation fee fell sharply to a five-year low of 0.2% in August because the impact of the Eat Out to Help Out scheme pushed down restaurant costs.
July’s Consumer Prices Index (CPI) inflation determine had been 1%.
The VAT minimize within the hospitality sector from 20% to five% was additionally an element, mentioned the Office for National Statistics.
Low inflation is nice for shoppers and debtors, however will be dangerous for savers, because it impacts the rates of interest set by banks and different monetary establishments.
The consuming out scheme, which ran from Monday to Wednesday in August, supplied 50% off meals as much as the worth of £10.
Discounts for greater than 100 million meals have been claimed by means of the scheme.
Prices in eating places and cafes have been 2.6% decrease than in August final 12 months, the primary time that they had been detrimental since data started in 1989, the ONS mentioned.
Did the rest get cheaper?
The value of clothes and footwear additionally fell considerably. And in a sign of the extreme impact of the pandemic on travel and tourism, air fares dropped in worth as fewer folks travelled overseas due to quarantine restrictions.
The ONS mentioned this was unprecedented for August, which is often the height month of the vacation season.
“The cost of dining out 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,” mentioned ONS deputy nationwide statistician Jonathan Athow.
“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.”
It was the bottom inflation fee since December 2015.
What is inflation?
Inflation is the speed at which the costs for items and providers improve.
It impacts every thing from mortgages to the price of our procuring and the value of prepare tickets.
It’s one of many key measures of monetary well-being, as a result of it impacts what shoppers can purchase for his or her cash. If there may be inflation, cash does not go as far.
What does this imply for the financial system?
A five-year low within the rise in client costs displays the extraordinary motion taken to attempt to get Brits again into city centres. The fall to 0.2% is overwhelmingly the results of the impression of Eat Out to Help Out and the non permanent VAT minimize for the hospitality sector.
It is a statistic that reaffirms what we already know, but additionally displays some freakishly non permanent elements. The chancellor’s restaurant subsidy scheme is already over, the VAT cuts expire in January.
Inflation is more likely to stay decrease than its 2% goal, besides within the case of an extra sharp fall within the worth of the pound – for instance, after a disorderly finish to the post-Brexit commerce talks. Either means, the Bank of England has extra space for further assist to the financial system within the coming months, with out risking a surge in inflation.
Are costs going to fall any decrease?
Probably not. Before the newest figures have been revealed, there had been fears that the UK inflation fee may flip detrimental, giving rise to what’s referred to as deflation.
Economists fear deflation as a result of falling costs result in decrease client spending, as consumers postpone huge purchases within the expectation that they’ll get cheaper nonetheless.
Thomas Pugh, UK economist at Capital Economics, mentioned August’s determine was in all probability “the low point” for inflation, however identified that it was unlikely to hit the Bank of England’s 2% goal throughout the subsequent few years.
“The big picture is that it will be a few years before the economy is strong enough to sustain CPI inflation at the 2% target,” he mentioned.
“The big risk to this view is a no-deal Brexit, which could cause a slump in the pound and, in turn, a temporary sharp rise in inflation to above 3.5%.”
Does this put extra money in my pocket?
Not essentially. Although costs went up little or no in August, a have a look at the figures over the previous three months reveals that on common, inflation has outstripped development in pay.
Inflation is calculated by a “basket” of generally bought items and evaluating how a lot they value now with final month and with the identical time final 12 months.
During the pandemic, the ONS has been unable to establish costs for most of the 720 objects it often displays.
In August, the ONS mentioned costs for less than eight objects have been nonetheless unavailable, reflecting components of the financial system nonetheless unable to function usually together with cruises, reside music, theatre, swimming swimming pools and smooth play classes.