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
The EY ITEM Club predicts that UK inflation will hover just above 0% for the rest of 2020, saying:
Price conscious consumers, excess capacity and limited earnings are likely to limit inflation in the near term.
Europe’s stock markets have made an underwhelming start to trading, as investors wait to hear from the US Federal Reserve tonight.
In London the FTSE 100 index has dipped by 6 points, or 0.1%, to 6099 points. Mining companies and retailer Kingfisher are among the risers.
Here’s our news story on the UK’s inflation figures:
Computer game prices bucked the downward trend last month, perhaps because of the lockdown has created a boom in home gaming.
It is possible that prices have been influenced by the coronavirus (COVID-19) lockdown changing the timing of demand and the availability of some items, particularly consoles.
However, it is equally likely to be a result of the computer games in the bestseller charts. Price movements for computer games can often be relatively large depending on the composition of these charts.
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).
Prices across UK hotels and restaurants were 2.8% lower than a year ago in August, the ONS adds.
That’s the first negative inflation reading across the sector in at least 30 years.
The restaurants and hotels group made a downward contribution of 0.27 percentage points in the latest month reflecting a negative 12-month inflation rate of 2.8%. This is the first time that the 12-month rate has been negative since the series began in 1989. The data reflect the effect of the Eat Out to Help Out Scheme. Under this, consumers could get a 50% discount (up to a maximum of £10 per diner) on food and non-alcoholic drinks to eat or drink in every Monday, Tuesday and Wednesday in August at participating establishments.
The reduction in Value Added Tax (VAT) from 20% to 5% on the hospitality sector also contributed to the fall in prices.
This chart from today’s inflation report shows how Rishi Sunak’s discount meal scheme pulled inflation down last month.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Inflation across the UK has fallen sharply, as the government’s Eat Out to Help Out discount meal scheme drove down the cost of living.
No policy changes are expected from the Fed and given Powell’s recent speech at Jackson Hole, there should be relatively little for the statement or press conference to add.
While acknowledging the more rapid improvement in the economic backdrop, we expect the message to remain one of caution.