UK inflation hit slowest increase; BoE interest rate unchanged

UK inflation hit slowest increase; BoE interest rate unchanged

The U.K. economy has yet again recorded an unprecedented event after the country’s inflation rate dived to its lowest level in five years while BoE kept its main interest rate unchanged.

U. K’s consumer price inflation for the month of August has fallen to 0.2%—the lowest since 2015—according to data released by the Office for National Statistics on Wednesday, September 16.

Prior to the drop, the consumer price index recorded a high of 1% in July.

Discounted meals drive UK inflation to drop

The drop in U. K’s annual consumer price index (CPI) is said to be massively driven by the Eat Out to Help Out scheme, a government-led initiative that aims to help restaurants and café owners.

The Eat Out to Help is a program where discounted meals of up to 50% were given to customers dining in cafes and restaurants. The scheme ran between Monday to Wednesday in August only.

It accumulated an estimated 100 million subsidized meals throughout the period. The ONS also said prices in cafes and restaurants have fallen by 2.6% compared to last year in the same period, marking the first time it has been negative since data tracking started in 1989.

UK inflation hit slowest increase; BoE interest rate unchanged

“The UK has dodged a deflationary bullet and avoided the fate of the Eurozone, which slipped into deflation of 0.2% in August,” Richard Berry, founder of Good Money Guide, told the Business Insider.

On another note, the office also mentioned other aspects that influenced the drop. Ranging from reduced airfares and low clothing prices. The government’s initiative to slash VAT (between 5% to 21%) has contributed to the falling rate as well.

BoE interest rate unchanged

Despite the decline, an article reported by The Guardian claimed that the drop will unlikely influence the Bank of England officials’ decisions concerning the bank’s policies. And on Thursday, September 17, the members of BoE’s monetary policy committee met to discuss the economy.

Per their meeting, the BoE kept its main interest rates unchanged, leaving it to its current all-time low rate at 0.1%. It also maintained its quantitative easing program (QE) at £745 billion.

MPC, however, is expected to increase its current QE figures by adding £100 million to be discussed at its next meeting in November, according to city analysts. But the expectation depends on whether the U.K. lockdown continues to slow down.

“Rising inflation has been much discussed as the inevitable consequence of all the stimulus being injected into the economy. Policymakers won’t be worried about this number; they are more likely to be pleased there is an activity in the economy,” the chief investment officer Neil Birrell said, per The Guardian.

Images courtesy of Pixabay/Pexels

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