Prices of transport, cultural activities and eating out pushed UK inflation higher in September, but the rate remained relatively low as the economy braced for a new wave of coronavirus restrictions.
Consumer prices rose 0.5 per cent on an annual basis last month, up from 0.2 per cent in August, according to figures from the Office for National Statistics released on Wednesday.
The rise was driven by prices for leisure and cultural activities, and the end of the government’s Eat Out to Help Out scheme, which financed discounted restaurant and café meals in August, that pushed prices in catering services up by 4.1 per cent.
The still low rate of inflation will mean state pensions will rise by 2.5 per cent in April to £137.61 under the government’s triple lock, which guarantees a rise of the highest of inflation in September, average earnings or 2.5 per cent.
With earnings currently falling, Nick Macpherson, former head of the Treasury, said that society should question whether pensioners should be receiving such a large share of national income at a difficult time for those of working age. “How much longer can the old folk carry on extracting rent from the young?” he asked.
Since airfares fell less than normal, transport prices also pushed inflation upwards, but the rises were offset by lower prices for food and non-alcoholic drinks, holidays and recreation, and culture activities.
Inflation in August had dropped to its lowest rate in more than four years, thanks to Eat Out to Help Out and a value added tax cut that brought the first decline in prices in restaurants and cafés since 1989.
For more than two years inflation has been falling gradually, but during the coronavirus lockdown it dropped at a faster rate.
The fall has prompted speculation that the Bank of England’s monetary police committee could roll out stimulus measures to boost prices, after increasing quantitative easing and cutting interest rates earlier in the year.
“It’s hard to think of reasons why the [MPC] won’t launch another £100bn or so of QE at the November meeting,” Paul Dales, chief UK economist at Capital Economics, said. “And despite public borrowing still jumping, the government may yet spend more.”
September’s inflation undershot the 0.6 per cent expected by economists. Core inflation, which excludes volatile elements such as alcohol and fuel, rose to 1.3 per cent from 0.9 per cent in August.
For the many people in the UK who have found their finances stretched during the pandemic the relatively low inflation will come as a relief, but economists noted it would undercut savings.
“Although a relatively low inflation rate is good news for household finances, many savers are struggling to find accounts offering more than 1 per cent interest, meaning that they’re often still seeing their savings being eroded,” said Alistair McQueen, head of savings and retirement at insurer Aviva.
And with job losses in the UK rising at a record rate, observers said weakened spending power would likely continue to result in low inflation.
“Many people have already lost their jobs, despite the supportive government measures, and others will be worried that they may lose their jobs with the furlough scheme ending in October,” Howard Archer, chief economic adviser to the EY Item Club, said.
“Additionally, many incomes have been affected. This is likely to keep consumers price conscious for some time.”
Source: Economy - ft.com
