Inflation falls to 0.2%

Inflation falls to 0.2%”

Discounts for more than 100 million meals were claimed via the government's "Eat Out to Help Out" programme, which offered diners a state-funded price reduction of up to 10 pounds ($12.89) between Mondays and Wednesdays in August.

Howard Archer, chief United Kingdom economist at the EY Item Club, added: 'August's inflation rate of 0.2 per cent 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'.

The reduction in Value-Added Tax from 20 per cent to 5 per cent on the hospitality sector also contributed to the fall in prices, the ONS said.

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

The "Eat Out to Help Out" incentive - which was valid Monday to Wednesday throughout August - saw the United Kingdom government contribute 50 percent of the cost of a cafe, restaurant or pub meal, up to £10 ($13, 11 euros) per person.

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).

More news: Oil price rises to $40

Nicholls is also concerned that the government's latest social distancing restrictions, introduced on Monday, will undo the good work that the Eat Out to Help Out scheme did in rebuilding consumer confidence in the sector.

The Bank of England's Monetary Policy Committee is due to announce its next interest rate decision on September 17, and most market watchers expect August's inflation reading to have limited impact on the central bank's policy-making.

Tombs expects electricity and natural gas prices will fall in October in response to Ofgem's 7.5% reduction in the default tariff price cap and firms in the services sector will likely absorb higher Covid-19 related costs, rather than pass them on to consumers, in the face of lingering weakness in demand.

The ONS figures also revealed a fall in fuel prices from an average of 113.1p per litre in August against 128.3p in 2019.

Meanwhile, the CPI including owner occupiers' housing costs (CPIH) 12-month inflation rate decreased to 0.5 percent in August, down from 1.1 percent in July, said the ONS.

Prices at restaurants and cafes fell 5.5% from July and were down 2.6% from a year earlier. This is a fall of 0.8% from July's CPI rate of 1.0%.

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