UK inflation dips to 0.2% on government's 'Eat Out to Help Out' scheme

Virus stimulus measures saw consumer prices rise by their lowest level in almost five years

A waiter clears plates on the final day of the UK's 'Eat Out to Help Out' scheme on August 31. In August, discounts for more than 100 million meals were claimed through the programme. EPA

The UK's 'Eat Out to Help Out' scheme to prop up the country’s hospitality sector during the Covid-19 pandemic helped to push the country's inflation rate to its lowest level since December 2015, according to UK government data.

The Consumer Price Index 12-month rate rose by 0.2 per cent in August from July’s 1.0 per cent increase, thanks to the government's restaurant subsidy scheme which aims to boost spending, data from the Office for National Statistics found on Wednesday.

“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,” said Jonathan Athow, the deputy national statistician for economic statistics at the ONS.

“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.”

The latest inflation rate is another sign of volatility for the UK economy, which has been hit hard by a three-month lockdown that closed, shops, pubs and offices and brought the economy to a halt.

In August, discounts for more than 100 million meals were claimed through the government’s “Eat Out to Help Out” programme, which offered Britons a government-funded price reduction of 50 per cent on their meal up to £10 (Dh47.36) per diner. As a result, prices fell in restaurants and cafes, down 5.7 per cent between July and August and 2.6 per cent compared with August last year – the first negative reading since records began in 1989.

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

“This morning’s inflation data represent a considerable blip to an upward trajectory for price growth. Nevertheless, given the significant downward contribution from just a one-off, sector-specific policy in the form of the Eat Out to Help Out scheme, it is likely that the rate of inflation will pick up again in the September data, now that this policy is no longer in place,” said Sam Miley, economist at the UK's Centre for Economics and Business Research.

Falling airfares and lower clothing price rises between July and August than between the same period a year ago also helped to lower annual inflation. Women’s clothing, in particular, rose 0.7 per cent between July and August, compared with a 3.5 per cent rise between the same two months a year ago.

However, eight items in the CPI’s inflation basket are still unavailable to UK consumers, said the ONS, down from 12 in July. These include tickets to the theatre and sports fixtures such as football and horse racing. In April, at the height of the UK lockdown, 90 items were unavailable to consumers.

The UK’s lower inflation rate, which came in slightly above analyst forecasts of zero, had little effect on sterling on Wednesday morning.

“UK annualised inflation came ahead of the forecast but the impact of this on sterling has been minimum. The inflation numbers have largely moved because of the government eat out scheme and this is the reason that we have not seen much of the movement in the sterling price,” said Naeem Aslam, chief market analyst at Avatrade.