Retailers are ‘absorbing the VAT increase’

The impact of the increase was all but non-existent because of the unusually high number of post-Christmas discounts and promotions, the British Retail Consortium (BRC) said.

Overall shop price inflation increased to 2.5 per cent in January from 2.1 per cent in December driven by an increase in food inflation from 4 per cent to 4.6 per cent, while non-food inflation increased marginally to 1.3 per cent from 1.1 per cent in December, the BRC-Nielsen Shop Price Index shows.

The “subdued” rise in non-food inflation offered clear evidence retailers had absorbed the vast proportion of the VAT increase into their profit margins to the benefit of consumers, the BRC said.

BRC director general Stephen Robertson said: “The VAT rise had little effect on shop prices in January. The impact of the rise was almost entirely lost among the unusually high number of post-Christmas discounts.

“The rate of inflation for non-food goods – mainly the ones subject to VAT – was only 0.2 percentage points higher after the VAT rise than before, showing retailers generally took the hit on behalf of customers.”