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Retail sales to drop by £2 billion due to VAT rise


Retailers are set to lose an estimated £2.2 billion in sales during the first quarter of 2011 because of the 2.5 per cent rise in VAT introduced today, according to new research.

Consumer spending will decline by 0.5 per cent year-on-year during Q1 and the tax change will cost each UK household on average £520, finds a new study by online shopping comparison site Kelkoo and the Centre for Retail Research (CRR).

The report suggests that costs will be passed onto customers gradually, with only one in five retailers planning to pass the full VAT increase onto consumers by the end of January but 95 per cent expecting to do so within three months.

Chris Simpson, Marketing Director of Kelkoo, commented: “In the new year, consumers will be left facing an increase in the price of everyday goods at a time when salaries are generally being frozen, and unemployment is rising.

“Retailers have spent the last few months encouraging consumers to ‘shop now to avoid the VAT increase’ which more than third seem to have taken on board.

“However, the combination of lower disposable incomes, higher prices, and a reluctance to increase borrowing is likely to result in lower levels of spending, meaning retailers may have to endure a £2.2 billion fall in retail sales in the first quarter of 2011.”

Around half of those questioned for the Kelkoo and CRR report claimed they would spend less in 2011 compared to last year and one in three admit to spending more in recent months to beat the VAT rise.

Big ticket and fashion items are likely to see the largest drop-off in sales with 41 per cent of respondents to the study stocking up on electrical goods, 28 per cent on clothing and shoes, and over 15 per cent on home furnishings and white goods before today’s tax rise.

Simpson advised: “Those planning to buy big ticket items in January should head online, as the savings made shopping on the internet could not only save shoppers 15 per cent on average, but may also help them to beat the tax man by negating the effect of the VAT induced price rises.”

Published on Tuesday 04 January by Editorial Assistant

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