Inflation drops to 0.2 percent but warnings that “more stimulus is needed’ emerge

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Inflation has been driven down to 0.2 percent, a five-year low. The eat out to help out scheme has largely been behind this drop, with more than 100 million meals being claimed through the scheme, which pushed down prices in restaurants and cafes by 2.6 percent when compared to August 2019.

This, according to the ONS, was the first time they had been negative since records began in 1989.

Lower prices are generally welcomed by consumers but Melissa Davies, the Chief Economist at Redburn, expressed worry and caution at the news: “August’s lurch down in UK inflation from one percent to 0.2 percent in part reflects the Eat Out to Help Out restaurant voucher scheme and the hospitality sector VAT reduction.

“But notwithstanding this, underlying inflationary pressures are weak in the UK, reflecting large amounts of spare capacity and still-weak demand.

“More stimulus is needed to help the economy catch up to pre-Covid levels of activity, but the furlough scheme is about to expire.

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“The consensus of opinion before the data came out was that CPI would collapse to zero, putting the UK on the threshold of deflation.

“Shocking though the fall was, inflation remains in positive territory – just.

“Crucially the biggest downward force on consumer prices – the month-long ‘Eat out to help out’ scheme – has now finished.

“Yet for all that, the UK has dodged a deflationary bullet and avoided the fate of the Eurozone, which slipped into deflation of 0.2 percent in August.

“As a result, the Bank of England is unlikely to be bounced into knee-jerk action at this week’s Monetary Policy Committee meeting.”

Savers are already being impacted by these inflation figures according to analysis from moneyfacts.co.uk.

According to their findings, the number of inflation-beating accounts on the UK savings market has risen.

Last month there were 91 accounts in total that beat inflation and now that number has risen to 531 today.

Standard savings accounts that can now either match or beat inflation include 87 easy access accounts, 75 notice accounts, 78 variable rate ISAs, 123 fixed rate ISAs and 310 fixed rate bonds (based on a £10,000 deposit).

Savers have seen their luck change in recent days as Skipton Building Society announced that they will be offering a 30-month Fixed Rate Bond with an interest rate of 1.15 percent, matching the best offer from NS&I’s variable rate income bonds.

Maitham Mohsin, Skipton’s Head of Savings, welcomed in the new offer with the following comments: “We’re delighted to offer a refreshed savings range and our new 15 month and 30 month fixed term ISAs go straight to the top of the Best Buys, while our 30 month Bond compares directly with NS&I’s offering but gives savers the comfort of a fixed rate for its term rather than variable where rates can fall as well as increase.

“Skipton is proud to offer customers a wide choice of great value savings products and a wide choice of ways in which to open them, including the Skipton App, Skipton Link video service, through our website, and by post.

“Our UK branch network is welcoming more and more customers back to a safe environment with social distancing and PPE in place and there are now five different ways a branch colleague can open an account for a customer, including there and then in a separate room in the branch.”



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