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Second lockdown slows inflation to 0.3% crawl

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Written by: Emma Lunn
16/12/2020
Covid-19 restrictions and the ‘Black Friday effect’ pushed the UK’s CPI inflation rate down to 0.3% from 0.7% in the previous month, according to the Office for National Statistics (ONS).

Clothing prices fell by 2.6% between October and November 2020, compared with a rise of 1% between the same two months a year ago.

The ONS pointed out that throughout 2020, it has seen clothing and footwear prices follow a different pattern compared with previous years.

It recorded increased discounting during March and April, probably in response to the lockdown, then prices were relatively stable (compared with previous years) to August.

Between August and October, prices broadly increased as usual, but this has been followed by a fall between October and November, whereas prices usually tend to rise between these two months.

This latest fall reflects increased discounting compared with last month.

The CPIH 12-month rate, which includes owner occupiers’ housing costs, also fell to 0.6% in November, down from 0.9% in October.

Ulas Akincilar, head of trading at the online trading platform Infinox, said: “England’s November lockdown slammed the brakes on the UK’s already faltering recovery and sent the economy skidding towards deflation.

“The prices of most of the goods and services tracked by the ONS fell during the month, and only the most rose-tinted observer could dismiss this as the result of temporary discounting for Black Friday.

“The pain is most acute among clothing and footwear retailers, who slashed prices by 2.6% overall between October and November. During the same period last year, average prices rose by 1%.

“Behind the desperate price cutting is an uncomfortable truth – consumer demand is reeling and business confidence is on the ropes.”

Rachel Winter, associate investment director at Killik & Co, said: “Unsurprisingly consumer spending and consumer confidence took a knock during the second national lockdown in November and inflation has further reduced. While vaccine hopes and flourishing retail sales over the last few weeks ahead of Christmas injected a glimmer of hope into a flatlining economy; Greater London and parts of the home counties being put into tier three restrictions, and the ensuing impact on the hospitality and leisure industries, will dampen back down any prospects of a recovery.

Unemployment has also shot up to the highest rate on record further rocking consumer confidence and they will continue to exercise caution when it comes to discretionary spend. All this will impact inflation figures, although a no-deal Brexit outcome, which is a real possibility, will weaken sterling and cause imported food price inflation, further hitting consumers.”

 

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