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End of Eat Out to Help Out spells rise in inflation

Oct 21
 
Tags: PwC
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End of Eat Out to Help Out spells rise in...

After the Eat Out to Help Out Scheme came to an end last month, prices in the UK were pushed up. Inflation increased to 0.5 per cent in September from 0.2 per cent in August, with restaurant and cafe prices rising.

The cost of catering services went up 4.1 per cent between August and September this year. This is in comparison with 0.2 per cent over the same two-month period in 2019.

Figures from the Office for National Statistics (ONS) also showed transport costs increasing for the first time since March. This was driven by an uptick in demand for second-hand cars as people moved away from their reliance on public transport during the pandemic.

Hannah Audino, economist at PwC, said: "The path for inflation in the next few months will depend on how widespread tighter lockdown restrictions become across the country - and the duration of these measures. Consumer confidence is, to some extent, dependent on their perception of health risks, which in turn are influenced by government measures.

“This will have an impact on the level of household spending, which could lead to a prolonged situation of low price growth, putting more pressure on the Bank of England to further ease monetary policy by cutting rates further, perhaps below zero."

Second-hand cars went up by 2.1 per cent between August and September, compared with a fall of 1.4 per cent last year. Despite average petrol prices increasing from 113.1 pence in August to 113.3 pence in September, they were still substantially below the 127.3 pence average of a year ago.

Usually, air fares see a significant drop in September as the school holidays come to an end, but this year the price drop is less dramatic, due to a subdued market. Economists predict around £100 billion of quantitative easing may well be announced by the Bank of England in November in light of the latest inflation figures.

The Consumer Prices Index (CPI) for September is the measure used to calculate state pensions, but the government’s triple-lock system protects it. The highest figure out of the CPI, earnings growth for the year or 2.5 per cent is used. Since the earnings growth was negative and CPI so low, it will be 2.5 per cent.

Next April’s increase in state benefits is also based on the September figures, meaning they’ll only go up by 0.5 per cent. This is in contrast to 1.7 per cent this year, which came off the back of last September’s inflation rate.

In England, the 0.5 per cent inflation rate will equate to a £159.42 million increase in business rates for 2021 to 2022. As a devolved matter, business rates are set separately in Wales, Scotland and Northern Ireland.

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