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Coronavirus: UK inflation falls sharply as Eat Out to Help Out cuts average prices

Yahoo! Finance UK logo Yahoo! Finance UK 16/09/2020 Tom Belger
a person standing in front of a store: A shop display a Welcome Back message on its window to customers at Carnaby street, as London prepare to reopen to the public when the lifting of further lockdown restrictions in England comes into effect on Saturday. Picture date: Friday July 3, 2020. A shop display a Welcome Back message on its window to customers at Carnaby street, as London prepare to reopen to the public when the lifting of further lockdown restrictions in England comes into effect on Saturday. Picture date: Friday July 3, 2020.

Average prices rose only 0.2% in August as the Eat Out to Help Out scheme sharply dragged down inflation. It marked a significant slowdown on the figure for July, when the rate increased to 1%.

The inflation rate slowed last month on the consumer price index (CPI), a closely followed measure of year-on-year change in the price of a ‘basket’ of common goods and services, according to data from the UK’s Office for National Statistics.

Analysts had expected prices to come in flat or decline 0.1%, highlighting the impact of the UK government’s subsidised meal scheme.

Consumers were able to buy eat-in meals half-price up to a discount of £10 in restaurants, cafes and pubs between Monday and Wednesday in August. Firms are able to claim a taxpayer refund to cover the discount, as part of an initiative by chancellor Rishi Sunak to revive the ailing hospitality sector.

Last month’s figures had seen inflation rising largely because of rising fuel prices and clothing costs, as more firms re-opened and “attempted to recoup lost income,” according to CMC Markets analyst Michael Hewson.

He noted rising unemployment was likely to see households “curtail their spending” in months to come, putting more downward pressure on prices.

“We’ve already started to see the early signs of the unemployment rate starting to edge higher, and with the furlough coming to an end next month and already being tapered, this deflationary wave is likely to get worse in the short term,” said Hewson.

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