COVID-19: U.K. Inflation Rate Drops to Lowest Since 2015

Advertisements
Advertisements

The U.K. inflation rate fell to the lowest since 2015 last month, driven by government tax cuts and other stimulus designed to dig the economy out of the depth of the coronavirus crisis.

The reading of 0.2% was slightly higher than the zero forecast by economists, although the drop from July’s reading of 1% was still the biggest since 2008. It’s the latest sign of the volatility brought about by the pandemic, which saw output shrink by more than 20% in the second quarter.

Advertisements

Prices fell on the month as government measures to support businesses kicked in. Those include a temporary sales-tax cut for hospitality firms, and subsidizing some restaurant meals in August under the Eat out to Help Out program announced by Chancellor of the Exchequer Rishi Sunak.

Economists expect a bounceback in coming months, and Bank of England Governor Andrew Bailey said this month he didn’t expect the rate to turn negative in the short-term.

Still, inflation has been at less than half the BOE’s 2% target since April — the first full month the virus lockdown — and the report comes a day before officials announce their September policy decision.

While no move is predicted on Thursday, the low reading may buttress arguments for an expected further easing of policy later this year.