United Kingdom diner discounts push inflation to near five-year low

Inflation

Inflation

Prices in restaurants and cafes were down 2.6% compared with August previous year, the first time they had been negative since records began in 1989, the ONS said.

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 Office for National Statistics (ONS) said the Consumer Prices Index tumbled from 1 per cent in July to 0.2 per cent in August - the lowest rate since December 2015. Although some restaurants have kept the discount going by themselves, many have not.

The scheme ran on Mondays to Wednesdays throughout August with the government making up the shortfall in bills.

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As well as the dining subsidy program and a Value-Added Tax cut in the hospitality sector from 20 percent to just five percent, falling air fares and the absence of the usual annual clothing price increases also contributed to the drop in the inflation rates.

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 United Kingdom this summer.

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.

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Another reason for deflation, the ONS noted, comes after retailers held back from increasing prices for autumn selling season.

It is the first time prices have fallen since records began in 1989, the BBC is reporting.

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.

The data therefore beat expectations and should therefore be positive for Sterling exchange rates, however given that inflation remains so far below the Bank of England's 2.0% target it is unsurprising that the Pound shrugged at the release.

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Allan Monks at JP Morgan said: 'We expect CPI inflation to hover around current levels for the next few months before re-accelerating from the turn of the year.

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