Shoppers warned VAT rise may mask price hikes
Uk companies could damage the fragile economic recovery by using next month's rise in VAT to "mask" hikes in prices, as they seek to protect profits from rising costs, according to a survey by accountancy firm KPMG.
Following widespread price-cutting during the downturn, 56% of retailers and consumer goods manufacturers plan to raise prices next year above the 2.5 per cent uplift in VAT on January 4, according to KPMG's research of 200 senior executives. Across all industries, 40% of companies, including those in the financial services, utilities (excluding water) and technology sectors, plan to hike prices by an unspecified amount.
Martin Scott, a partner at KPMG's performance and technology unit, said: "In today's price-sensitive market, any increases may well have a damaging effect on sales volumes."
A key problem is that following the end of the recession prices that consumers find acceptable seem to be lower than what companies had hoped for.
KPMG said that large-scale price hikes could hit consumer confidence and the wider economic recovery by causing an unexpected inflation spike on the high street at a time when trading conditions are fragile.