THE Consumer Prices Index (CPI) rate of inflation plunged to 0.2% in August from 1% in July largely due to the Eat Out to Help Out scheme.
It’s the lowest level of CPI inflation, which measures how prices have changed over a year, since December 2015, according to the Office for National Statistics (ONS).
Eat Out to Help Out and a VAT cut are the main reasons for the drop as it saw people spending less cash in restaurants and cafes compared to the year to last August.
Under the government discount scheme, which was designed to boost the ailing hospitality industry after coronavirus lockdown, restaurants and cafes offered 50% off food and non-alcoholic drinks up to £10 a head.
The scheme ran on Mondays to Wednesdays throughout August with the government making up the shortfall in bills. Some 64million meals were claimed under the initiative.
Some restaurants even continued the scheme into this month, although this is off their own backs as government funding for the scheme stopped on August 31.
But it’s thought chancellor Rishi Sunak is eyeing up the possibility of bringing the scheme back this winter.
A VAT cut from 20% to 5% for those in the hospitality and tourism sectors, which began on July 15 and will remain in place until January 12, 2021, also saw prices fall.
Major chains, including Costa, Greggs, McDonald’s and Nando’s have all passed on partial or full savings to customers in the form of lower prices.
The ONS adds that air fares fell in August for the first time on record as the pandemic saw more Brits holiday in the UK this summer.
Meanwhile, clothing prices also fell as retailers held off from upping prices for the usual autumn selling season.
Elsewhere, the Consumer Prices Index including housing costs (CPIH) measure of inflation fell from 1.1% in the year to July to 0.5% in August, while the Retail Prices Index (RPI) fell from 1.6% to 0.5% over the same period.
Jonathan Athow, deputy national statistician at the ONS, said: “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.
“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.”
Thomas Pugh, UK economist at research firm Capital Economics, adds that some of these drops should be reversed over the coming months, especially now Eat Out to Help Out has ended.
But he believes it will be a while before inflation returns to the Bank of England’s 2% target, and some experts have even warned negative inflation could be on the cards.
Mr Pugh said: “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.
“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%.”