Chancellor Rachel Reeves has launched a discount campaign that analysts say will only marginally reduce an expected rise in inflation across the UK.
JP Morgan analysis suggests the measures could strip 0.2 percentage points off CPI inflation, offering limited relief to households facing rising prices.
The analysis indicates that two-thirds of the £300m package would pass through to lower prices for consumers across the country.
The Treasury had previously refused to disclose how far the measures would delay a rise in price growth expected due to trade disruption across the Strait of Hormuz as a result of the Iran war.
The package includes a VAT reduction from the standard 20 per cent to five per cent for “Summer attractions” and children’s meals over July and August, as well as free bus rides for under-16s.
Reeves also moved to delay a hike in fuel duty beyond September, with the Chancellor stating the package would be funded by targeting oil and gas companies’ UK trading profits.
Government ministers are understood to be considering a larger energy support package ahead of winter, following Ofgem’s decision to raise the energy price cap by 13 per cent to £1,862 from July.
The energy price cap will be reset in September, around the time inflation is expected to peak as a result of the slow pass-through of the energy price shock.
The Bank of England has warned that a packaging tax will add around 0.5 percentage points to inflation, while higher national insurance contributions and minimum wage hikes have also added to price growth.
Energy experts have urged the government to lift restrictions on North Sea oil and gas extraction, arguing that maximising supply could strengthen the pound sterling and slow price growth.
Sir Keir Starmer has insisted that allowing further oil and gas extraction would “not take a penny off bills,” rejecting calls from the energy sector.
Pantheon Macroeconomics analysts warned that inflation expectations are “already de-anchored,” following a Bank of England survey showing price growth predictions were at a record high.
“The Monetary Policy Committee does not have the luxury of assuming anchored expectations and will need to keep policy restrictive to ensure inflation returns to target,” analysts said.
In the worst-case scenario for second-round effects, the Bank warned inflation could surge by six per cent, raising alarm among policymakers and economists alike.
Governor Andrew Bailey said in a speech that the scenarios set out by the Bank had to “balance the costs” of both weaker and more unpredictable behavioural effects on inflation.
Bailey also confirmed that the Bank had upgraded its analytical resources since it admitted to failing to tame a spike in inflation following Russia’s full-scale invasion of Ukraine.