BRC: Retailers contain effects of VAT increase

Date: 3rd February 2010

British retailers were relatively unaffected by the VAT increase at the beginning of last month, new research has suggested.

The latest report from the British Retail Consortium (BRC) said "huge numbers" of January sales promotions had boosted business despite many firms deciding to absorb the 2.5 per cent increase.

As announced in the Pre-Budget Report last year, the rate of VAT reverted to 17.5 per cent on January 1st after being temporarily reduced to 15 per cent in order to boost sales during the recession.

The BRC report also showed that non-food inflation increased from 1.4 per cent to 1.9 per cent between December 2009 and January 2010.

Food inflation reduced from 3.7 per cent to 2.9 per cent over the same period leaving the overall rate of inflation at 2.3 per cent last month.

Stephen Robertson, director general of the BRC, said: "January's VAT increase was lost among a huge number of discounts and promotions.

"We would have expected non-food inflation to be higher because of the VAT rate reversal, but many shops held off passing the extra costs onto their customers."