UK Retail concerned over VAT rise

Standard Value Added Tax increases from 17.5 per cent to 20 per cent today
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The High Street is bracing itself for a slowdown in sales this year due to the VAT increase.

A study by the Centre for Retail Research, in association with online shopping group Kelkoo forecasts that consumers will spend an average of £324 less in 2011 because of the VAT increase.

The report also revealed that the January sales will boost spending by 1.6 per cent this month before the effect of the increase is felt. Thereafter, sales are expected to fall by £2.2bn in the first three months of the year.

However, some retailers are expected to hold off on implementing the VAT increase, according to the British Retail Consortium. A spokesperson told the Guardian this morning: “We’re not expecting the prices to shoot up overnight. For quite a period the effect of the VAT rise will be lost amid the discounts and sales.

“The VAT rise is certainly being used as part of the promotion activity that retailers are involved in. Some are saying they will bear the cost of the rise for people. They are effectively holding prices at the pre-VAT rise level as a promotion.

“Over the next few months there is no question it will put up prices and retailers have been pointing this out as part of their efforts to make people buy.”

The retail sectors expected to be hit hardest by the VAT rise, according to the Centre for Retail Research, will be petrol, housewares, specialist food, furniture, electricals, books and stationers/newsagents. The CRC claims that some 9,480 stores in these sectors could close during 2011 due to the VAT rise.

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