Inflation plunges as Eat Out to Help Out cuts restaurant bills

Inflation plunged in August as the government's Eat Out to Help Out scheme cut the cost of restaurant bills, official figures showed.

Annual consumer price inflation fell to 0.2% from 1% in July as the Chancellor Rishi Sunak's subsidy for meals out and a VAT cut for the hospitality industry reduced prices, the Office for National Statistics said. On average, economists had expected the rate of price increases to drop to zero.

Prices in the hotels and restaurant sector fell 2.8% compared with a 1.8% increase in July. Clothing and footwear prices also fell as retailers delayed price rises for autumn ranges and air fares fell in August for the first time on record.

The unusually big drop for inflation showed the effects of the Covid-19 crisis hitting large swathes of the economy. Recreation and culture was the only sector to register a small increase to 2.8% from 2.6%.

ONS statistician Jonathan Athow said: “The cost of dining out fell significantly in August thanks to the Eat Out to Help Out scheme and VAT cut, leading to one of the largest falls in the annual inflation rate in recent years."

Capital Economics said August was probably the low point for inflation after the Eat Out to Help Out subsidy finished at the end of August.

"The VAT cut for the hospitality industry will expire on 12 January [and] the drag on inflation from the previous collapse in the oil price will continue to fade," Capital's Thomas Pugh said. "But the big picture is that it will be a few years before the economy is strong enough to sustain CPI inflation at the 2% target."