UK inflation drops to 4-year low of 0.2 pct in August

Britain’s Consumer Prices Index (CPI) 12-month rate dropped to 0.2 percent in August, as the diner discounts scheme played a significant role in dragging the inflation down, the Office for National Statistics (ONS) said Wednesday.

The reading of 0.2 percent in August 2020, down from 1.0 percent in July, was further lower than the Bank of England (BoE)’s 2 percent target for inflations.

Meanwhile, the CPI including owner occupiers’ housing costs (CPIH) 12-month inflation rate decreased to 0.5 percent in August, down from 1.1 percent in July, said the ONS.

“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 CPIH 12-month inflation rate between July and August 2020,” said the ONS.

Despite the low inflation rate, Howard Archer, chief economic adviser at EY ITEM Club, a British economics forecasting group, predicted that the BoE is not expected to adjust the interest rate soon.

The inflation drop was a result of “temporary VAT cut for the hospitality sector impacted along with the Eat Out to Help Out Scheme,” said Archer.

“BoE still unlikely to change policy on Thursday after September Monetary Policy Committee (MPC) meeting despite inflation falling to 0.2 percent in August (lowest since January 2016),” tweeted Archer.