UK inflation slumps to five-year low

The Consumer Prices Index (CPI) 12-month rate fell to 0.2% in August 2020, down from 1.0% in July, according to new data from the ONS.

The ONS said falling prices in restaurants and cafes, arising from the Eat Out to Help Out Scheme, resulted in the largest downward contribution (0.44 percentage points) to the change in the inflation rates between July and August 2020.

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Other smaller downward contributions came from falling air fares and clothing prices rising by less between July and August 2020 than between the same two months a year ago.

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 reduction in Value Added Tax (VAT) from 20% to 5% on the hospitality sector also contributed to the fall in prices.

The ONS said: “Over the last 10 years, the largest contribution to the annual CPIH inflation rate came from either housing and household services or transport. However, this changed in April 2020 because of a combination of reduced household utility bills and falling motor fuel prices. Since then, the largest contribution has come from recreation and culture.

“The contribution from this group increased between March and April 2020, when prices for data processing equipment, computer games, games consoles and children’s toys rose – unlike the March to April falls observed in recent years – partly as a result of the restrictions caused by the coronavirus.”

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