28/01/2011 - VAT increase slows sales growth
A report from the CBI has revealed that the VAT increase in January has hit sales in the UK, with fewer people spending in spite of extensive discounts across stores.
According to the distributive trades retail survey by the lobby group, 37% of retailers sold more items in January than they did a year ago - a drop from 56% in December.
The VAT increase from 17.5% to 20%, which came into effect in early January, is being held responsible for the slowing of sales.
Sales growth is expected to continue slowing down next month, with only 25% of retailers expecting to see a rise in sales.
The CBI survey has further warned that following the most dismal performance ever in December, with the cold snap affecting sales, it is highly unlikely that the industry will make a comeback so soon.
Wages are also expected to lie under the increase in prices, contributing to slower sales figures.
Ian McCafferty, CBI chief economic adviser, said: "The lure of seasonal sales and price discounting may have helped mitigate some of the impact of the VAT increase on volumes.
"However, retailers expect the pace of sales growth to slow further next month, and orders placed with suppliers have flattened out.
"Consumer demand is expected to be weak in the coming months, as the spending power of households is hit by a combination of sharply rising prices and weak wage growth. Retailers can expect a challenging period ahead."
Copyright © Press Association 2011
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