Inflation falls thanks to the UK's "eat out to help out" scheme

Inflation in the UK suffered a sharp drop to 0.2% in the wake of the government's "eat out to help out" scheme that took place throughout August - a noticeable shift from the 1% measured at the end of July - marking its lowest point in nearly five years.

Consumer price index (CPI) dropped by 0.8% over the 30-day period to mark the lowest levels since December 2015.

The scheme was thought up by UK Chancellor Rishi Sunak as a way of getting the hospitality sector back up and running after the four-month lockdown following the rise of the coronavirus pandemic.

According to the Guardian, the initiative was highly successful, with over 100 million meals being subsidised throughout the course of the month.

On August 31 alone, restaurant bookings were up 216% on the same day the previous year, according to online booking app, Open Table.

The treasury claims that 84,000 establishments signed up for the scheme and made some 130,000 claims worth £522 million (€567 million).

The ONS also attributed a decline in air travel prices and a rise in clothing prices to the inflation changes.

Other contributions to the price drops came from games, toys, hobbies, accommodation services, road transport services and the sale of second-hand cars.

In addition, the "eat out to help out" scheme was also met with a sharp drop in VAT from 20% to 5% for the hospitality sector to aid in price drops and kickstart its resurgence.

There was an unexpected rise in prices in July owing to the largest spike in petrol prices in over a decade and a lack of high-street sales as non-essential shops reopened.

Thomas Pugh, a UK economist at Capital Economics, said the fall in inflation to 0.2% probably represented the low point.

He said: "A sustained rise to 2.0% seems unlikely within the next few years."

Neil Birrell, the chief investment officer at the asset manager Premier Miton, said the rise in core inflation was more indicative of the bounceback in economic activity during the summer months as the lockdown eased and more people went back to work from being on furlough.

He added: “Rising inflation has been much discussed as the inevitable consequence of all the stimulus being injected into the economy. Policymakers won’t be worried about this number; they are more likely to be pleased there is activity in the economy."

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