Rolling coverage of the latest economic and financial news, as UK inflation falls to its lowest level since 2015
- Latest: Economists predict inflation will stay low
- Introduction: CPI tumbles to 0.2%
- Discount meal deal pulls inflation down
- Cheaper air fares and clothing too
- Lowest inflation rate since 2015
Tom Stevenson, investment director at Fidelity International, says the UK is facing ‘disinflationary’ pressures – which go beyond one month’s cheap meal offers.
“Eat out to help out was the main influence on the lowest inflation rate for nearly five years. But disinflationary forces were evident across the economy as fears about an autumn surge in unemployment held back consumer confidence. Food, clothing and transport all exerted downward pressure on prices. It remains to be seen if this is part of continued downwards movement or just a monthly dip.
“Weak demand should ensure that inflationary concerns remain on the back burner for now and price growth will track closer to zero through to the end of the year. Rising coronavirus cases, the reintroduction of restrictions, negative wage growth and the prospect of half a million redundancies as the furlough scheme winds down this autumn will all play a part in keeping consumer spending subdued.
CPI inflation falls to 0.2% in August from 1.0% in July, a five year low.
About half the reduction is ‘eat out to help out’, but inflation lower across all but one categories.
This is an economy that badly needs major government investment. (1/2) pic.twitter.com/uSVub9nn7n
Inflation by category – big fall from restaurants, from eat out. But only (and slight) rise is for recreation and culture. Everything else down, with four categories showing falling prices. (2/2) pic.twitter.com/7LnAdX5rlh
“The inflation data in the UK surprised on the upside. The core year-on-year CPI was up 0.9% against expectations of 0.5%. Rising inflation has been much discussed as the inevitable consequence of all the stimulus being injected into the economy. Policy makers won’t be worried about this number, they are more likely to be pleased there is activity in the economy.”
“The Eat Out to Help Out scheme and the cut to VAT for hospitality businesses helped push consumer inflation to just 0.2% in August, for the first time since December 2015.
“The low inflation will serve to protect households’ spending power at times when many are feeling under pressure.
Core inflation, which strips out food and energy costs, also fell last month.
UK inflation shows a huge drop in August but comes in marginally higher than forecast.
Core CPI (YoY) +0.9% (vs +0.6% exp, +1.8% last)
Headline CPI +0.2% (0.0% exp, +1.0% last).