Inflation rises to 0.5% after end of Eat Out To Help Out

Inflation rises to 0.5% after end of Eat Out to Help Out in blow for retailers and hospitality firms who face £160m business rate hit despite Covid economic chaos – but elderly stand to benefit from 2.5% increase in state pensions

  • The ONS said Consumer Prices Index inflation rose to 0.5% in September 
  • It was only 0.2% in August because discount scheme held down prices
  • September’s inflation figure is used to decide annual increase in business rates
  • Covid ‘rate holiday’ for firms ends in March, just before new rate comes in
  • Also used to set state pension, meaning it will rise by 2.5% under ‘triple lock’ 

The end of Rishi Sunak’s Eat Out to Help Out scheme saw inflation rise last month – leaving firms already struggling with coronavirus economic turmoil with a business rate headache next year 

The Office for National Statistics (ONS) said Consumer Prices Index (CPI) inflation rose to 0.5 per cent in September from 0.2 per cent in August.

It came as the Eat Out to Help Out discount scheme to boost the embattled hospitality sector amid the pandemic finished at the end of August, which had helped send inflation to its lowest level for nearly five years.

But exerts warned the spike last month would leave retailers and hospitality firms facing a ‘double whammy’ blow next year. September’s inflation figure is used to decide the annual increase in business rates – meaning they could rise by £160million.

The hard-hit retail, leisure and hospitality sectors have been given a one-year rate holiday to help weather the pandemic, but this is set to end on March 31 – just before the new charge kicks in on April 1. 

The Government confirmed earlier this month that the next revaluation of business rates on shops and business premises will be postponed until April 2023, but this has disappointed many who are calling for an urgent overhaul of the system.

September’s CPI is also used in the calculation for state pensions, although the triple-lock rule means the payout will rise by 2.5 per cent as it guarantees to increase by the highest figure out of CPI, earnings growth for the year to July, or 2.5 per cent. 

The ONS said CPI inflation rose to 0.5 per cent in September from 0.2 per cent in August, after the end of Chancellor Rishi Sunak’s Eat Out to Help Out discount scheme

Jonathan Athow, deputy national statistician at the ONS, said: ‘The official end to the Eat Out to Help Out scheme meant prices for dining out rose during September, partially offsetting the sharp fall in inflation for August.

‘Air fares would normally fall substantially at this time due to the end of the school holidays, but with prices subdued this year, as fewer people have been travelling abroad, the price drop has been less significant.

‘Meanwhile, as some consumers look for alternatives to using public transport, there was an increased demand for used cars, which saw their prices rise.’

A rise in fuel costs added to the upward pressure on inflation, with average petrol prices rising to 113.3 pence a litre in September, up from 113.1 pence in August, but below 127.3 pence seen a year earlier.

Meanwhile, CPI including owner-occupiers’ housing costs (CPIH) – the ONS’s preferred measure of inflation – was 0.7 per cent in September, up from 0.5 per cent in August.

The Retail Price Index (RPI) measure of inflation was 1.1 per cent last month, up from 0.5 per cent in August.

Economists said the rise in inflation came after it was temporarily sent lower in August, though CPI is still set to remain below 1 per cent into early 2021.

Howard Archer at the EY Item Club said: ‘August’s rate of 0.2 per cent almost certainly marked the low point for inflation and this view is reinforced by September’s rise to 0.5 per cent.’

He added inflation will likely ‘start rising from the second quarter of 2021 as the temporary VAT cut ends at the end of March’.

The increase in CPI to 0.5 per cent means business rates will surge by £159.42 million in England next April, according to real estate adviser Altus Group.

It said £50.12 million will be shouldered alone by retailers in a painful ‘double whammy’ for the sector.

Nearly 360,000 occupied retail, leisure and hospitality premises will return to full business rates on April 1 2021 after having had a £10.13 billion rates holiday in England this current financial year, Altus added.

Robert Hayton, its head of UK business rates, said: ‘Government has an opportunity to disprove detractors, showing that the business rates system is in step with reality ensuring appeals to reduce property values because of Covid are accepted quickly, and at the same time, injecting additional targeted financial support to where it is needed most.’

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