Record jump in UK inflation as food prices rise

Price rises in the UK have shown the biggest increase in more than 20 years, official figures show.

The consumer prices index, which measures the cost of a typical “shopping basket” of goods and services, rose from 2% in July to 3.2% in August.

Higher prices for food, petrol and used cars were all behind the spike in inflation, the Office for National Statistics (ONS) said.

Restaurant prices rose in comparison to last year due to the ‘Eat Out to Help Out’ scheme, which offered a 50% discount on meals up to £10 on Mondays, Tuesdays and Wednesdays throughout August 2020.

Also driving food price inflation last month were shortages of supply chain staff and increased shipping costs, coupled with demand increases following the lifting of national lockdowns.

In July, lower clothing and footwear prices contributed to a smaller rise in the cost of living.

“August saw the largest rise in annual inflation month-on-month since the series was introduced almost a quarter of a century ago,” said Jonathan Athow, deputy national statistician at the ONS.

“However, much of this is likely to be temporary as last year restaurant and cafe prices fell substantially due to the Eat Out to Help Out scheme, while this year prices rose.”

UK inflation rises to 0.5%

The UK’s headline rate of inflation climbed to 0.5% last month as restaurants, pubs and cafes raised their prices following the end of the Eat Out to Help Out scheme.

Designed to support the catering sector after months of lockdown due to Covid-19, the discount meals scheme offered 50% off food and non-alcoholic drinks up to £10 during August. More than 100 million meals were bought through the scheme.

The Consumer Prices Index (CPI) began rising more quickly in September when the scheme came to an end, according to the latest report from the the Office for National Statistics (ONS).

In catering services, prices rose by 4.1% between August and September 2020, compared with a rise of 0.2% between the same two months in 2019.

Transport costs also went up in September as demand for second-hand cars increased.

The price of second-hand cars rose by 2.1% between August and September 2020, compared with a 1.4% fall between the same two months a year ago.

Despite the higher CPI, inflation remains below the Bank of England’s 2% target and analysts believe that the Monetary Policy Committee may decide on additional monetary stimulus measures next month to help boost the economy.

BoE survey shows high expectations of inflation

The Bank of England (BoE) has released data showing that public expectations of inflation over the next 12 months are at their highest in five years, according to Reuters.

The proportion of the public anticipating that interest rates will rise has dropped, according to the research.

Brits surveyed in February 2019 said they expect inflation to average 3.2% over the next year, unchanged from November levels which were the highest proportion since November 2013.

The quarterly BoE survey of 4,000 people found 47% of UK citizens expect that interest rates will be raised over the next 12 months, down from 53% in November.

In February, consumer price inflation in Britain grew to 1.9% after a two-year low of 1.8% in January. The BoE forecast is that inflation will rise a little above the target 2% this year.

BoE has warned that a no-deal Brexit would impact these predictions, weakening sterling and making inflation rise sharply.

UK inflation at a one-year low

Inflation in the UK remained at a one-year low in May, leaving open the possibility of a raise in the interest rate from the Bank of England.

In May 2018 consumer price inflation was at 2.4%, the joint lowest annual rate since March 2017, according to the National Office for Statistics. A Reuters poll of economists had predicted a rate of 2.5%.

In November 2017 inflation reached a five-year high of 3.1%, as the drop in the value of the pound following the EU referendum led to a fall in consumer spending and slower growth in the British economy.

Rises in oil prices and energy bills are expected to produce further increases in the inflation rate in the coming months, followed by a tailing off towards the target rate of 2%.

Economists said there was nothing to indicate an urgent need to raise interest rates, following a November rise – the first since 2008.

John Lewis Partnership profits fall 53.3%

Profits of the John Lewis Partnership have fallen more than 50% following a major programme of restructuring and redundancies, according to the BBC.

A £56.4m transformation programme meant that profits before tax fell 53.3% to £26.6m for the two quarters ending July 2017. Operating profits for the John Lewis department store rose 10% but Waitrose operating profits fell 18% due to higher costs.

John Lewis Partnership Chairman Sir Charlie Mayfield said that inflation and a weak pound had contributed to the drop: “This is a tough market for retailers. There’s any number of reasons for that. The reason our profits are down is predominantly because of margin, and cost prices are rising. It’s a very competitive market, retail prices are not rising as fast.”

Mayfield said that the retailer had chosen to absorb higher costs caused by inflation, using the Partnership’s cash reserves.

A statement from John Lewis also said spending on the reorganisation was an investment for the future and that the chain was moving forward.

Mayfield said: “While it’s been a difficult first-half, our sales have still been up, our profits are down, but we’ve made some really important progress for the future.”