‘Eat Out…’ Scheme Causes Inflation to Plummet

Cheaper restaurant meals as part of the Eat Out to Help Out scheme helped drive the sharpest fall in the cost of living for five years.

The Consumer Price Index, which tracks the cost of living in the UK, fell from 1% to just 0.2% over the month of August.

According to the Office of National Statistics, the Eat Out to Help Out Scheme was the single biggest factor behind the fall in inflation.

The scheme was rolled out by Chancellor Rishi Sunak in July, in a bid to kickstart the hospitality sector, which was badly affected by market slowdowns as a result of Coronavirus.

Chancellor Rishi Sunak

Under the scheme, which ran throughout August, diners enjoyed a 50% discount on food and non-alcoholic drinks at thousands of eateries at any time from Monday-Thursday.

As a result, the price of eating out fell for the first time in 30 years, costing an average of 2.9% less than it did in August 2019.

The Treasury also slashed VAT from 20% to 5% for businesses in the sector as part of the regeneration package.

This temporary tax cut was also a key contributor to the fall in inflation to its lowest point since December 2015.

Inflation is a measure of how quickly the price of goods and services rises in relation to wages; when inflation is low, money has more purchasing power.

As well as falling prices across the hospitality sector, plummeting airfares and clothing prices helped to nudge the rate even lower, a symptom of the slowdown in travel and high-street shopping that continues to haunt retailers in these sectors.

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. For the first time since records began, airfares fell in August as fewer people travelled abroad on holiday. Meanwhile, the usual clothing price rises seen at this time of year, as autumn ranges hit the shops, also failed to materialise.

said ONS deputy national statistician Jonathan Athow

The latest figures hint that as economic slowdown takes hold, the costs of goods and services is shifting in favour of consumers.

However, as spending on games, hobbies and hotels crept up, so did the cost of purchasing these goods and services.

Low inflation is great news for borrowers and spenders because it means that the price of goods is rising slowly compared to earnings, making money seem to go further and meaning that people are likely to be charged less interest on variable-rate loans.

When inflation falls, it means that the cost of goods and services is falling compared to earnings.

However, the news is not so good for savers- or banks for that matter.

When inflation is low, there is little incentive to save money, as interest rates often fall to mirror the trend and purchasing goods and services at low cost becomes attractive.

This means that savers earn less interest, and so are less likely to put money away, causing a problem for banks which rely on savings and interest earnings to do business.