Discounts could hide VAT rise in short term
Reluctantly, retailers accept the VAT rise is necessary as part of the Government's package of measures to straighten out the public finances.
But, speaking ahead of the implementation of the rise today the BRC said, even if retailers can absorb the extra cost for a time, it would filter through to prices and play a part in undermining retail sales as the year continues.
British Retail Economist Richard Lim said: "The prospect of the VAT rise gave a modest boost to the sales of big-ticket and high-end goods in December as people brought their buying forward.
"With the weather and weak consumer confidence undermining the sector's performance in the run-up to Christmas, retailers are discounting in a big way now to make up for missed sales. That may mean the impact of the VAT rise is lost among promotional price cuts. But retailers can't absorb the cost indefinitely. In time, the VAT increase will push inflation up and - along with National Insurance rises and public sector job losses - harm sales as the year continues.
"But, we do accept that the VAT rise - with substantial public spending cuts - is necessary as part of the Government's package to tackle the deficit."
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