Shoppers spared as retailers take hit on VAT hike
Shoppers were spared most of last month's reversal in the VAT reduction as retailers held back price hikes and ran promotions to boost January trade, according to figures released today.
The British Retail Consortium-Nielsen Shop Price Index found that while overall retail prices rose annually by 2.3% in January, this was only up marginally on December's 2.2%.
Stephen Robertson, the BRC's director general, 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.”
Some of the UK's biggest retailers, including John Lewis, held back on restoring VAT to 17.5% on January 1. Tesco, Asda and Sainsbury's followed suit on many non-food lines.
Mr Robertson said: “Fierce competition, in the face of weakening consumer demand and uncertainty about the recovery, is keeping shop prices down.”
The annual rate of non-food price inflation was 1.9% in January, up by 0.5% on the previous month. DIY, gardening and hardware retailers registered price increases, as did health and beauty chains, compared with December. Book, stationery and home entertainment retailers suffered 2.1% price deflation.
Food price inflation was higher by 2.9% in January, down from a rise of 3.7% in December — the first time food inflation had slowed since August.
Meanwhile, a separate survey from Kantar Worldpanel revealed that Tesco has moved ahead of Asda for the first time in two years. For the 12 weeks to January 24, Tesco’s sales were up by 5.5%, compared with Asda's 4.3%. Sainsbury's sales rose by 6.8%.