Inflation falls to just 0.2% in August as Rishi Sunak’s Eat Out to Help Out scheme drives prices lower

Inflation declined sharply in August, driven lower by falling prices in restaurants and cafes thanks to Rishi Suank’s Eat Out to Help Out Scheme.

UK inflation came in at just 0.2%, well below the Bank of England’s 2% target. It is a sharp fall from 1% in July, which was driven by increases in clothing and fuel prices.

Under the Eat Out to Help Out Scheme, consumers could get a 50% discount – up to a maximum of £10 per diner – on food and non-alcoholic drinks to eat or drink in every Monday, Tuesday and Wednesday in August.

Falling air fares and clothing prices also contributed to prices falling. This took place as less people flew abroad on holiday and increased clothes prices on Autumn ranges failed to materialise.

ONS deputy National Statistician for Economic Statistics Jonathan Athow 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.”

Economists pointed out that the sharply reduced consumer price inflation was welcome news for consumer’s purchasing power, which has recently been under pressure from falling earnings.

Howard Archer economist at the EY ITEM Club said: “August’s inflation rate of 0.2% may well prove the low point for inflation, especially as the Eat Out to Help Out Scheme has now ended (although some restaurants are extending it voluntarily.

“We suspect inflation will hover just above 0% for the rest of 2020. Price conscious consumers, excess capacity and limited earnings are likely to limit inflation in the near term at least. There may also be some limited downward impact on inflation from a recent overall firming of the pound.”

But others fear that inflation could turn negative this year, putting the UK into deflation.

James Bentley, director of Financial Markets Online, said: “For CPI to plunge from 1% to close to zero in just a month raises the spectre of the UK following the Eurozone into deflationary territory.

“Right now Britain needs deflation like a hole in the head. Faced with falling prices, consumers tend to hold off on buying things in the hope of securing a discount in future. Every deferred purchase is one less sale for Britain’s struggling companies, many of whom are still enduring demand well below its pre-Covid level.

“Meanwhile the surge in the number of unemployed Britons means the chances of UK consumers spending their way out of the current crisis are getting slimmer by the day.

“The Bank of England has already thrown the kitchen sink at monetary stimulus for the UK economy, but the collapse in inflation means it could feel compelled to open the money taps even wider.”