Retailers plan covert price hikes alongside VAT increase

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, a leading firm of accountants warned yesterday.

Following widespread price-cutting during the downturn, 56 per cent of retailers and consumer goods manufacturers plan to raise prices next year above the 2.5 per cent uplift in VAT on 4 January, a KPMG survey of 200 senior executives reveals. Across all industries, 40 per cent 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, said: "In today's price-sensitive market, any increases may well have a damaging effect on sales volumes."

A key problem is that despite the end of the recession, the level of prices that consumers find acceptable seems to be lower than retailers had hoped.

Mr Scott said: "Downturn discounting has reset the price baseline for consumers, who are now unwilling to pay more for goods and services: companies need to be wary of first mover disadvantage."

While all businesses have been hit by rising fuel costs, companies – notably non-food retailers – that source from the Far East have also faced record freight shipping rates, soaring cotton prices and rising wages in China's factories.

Fashion retailers ranging from Next to New Look have warned clothing prices could rise by as much as 10 per cent next year.

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.

Mr Scott added: "Any short-term boost to profitability may be offset if longer-term demand in the economy is dampened by pushing up inflation – and with economic forecasts predicting a slowdown in the new year, this could threaten an already precarious recovery."

However, the British Retail Consortium (BRC) and Nielsen survey provided hope on prices last week when it said the annual rate of shop-price inflation fell to 2 per cent last month, down from 2.2 per cent in October.

According to KPMG, UK companies lack a clear understanding of, and struggle to obtain accurate data on, the actual effect of price on their financial performance. Almost two-thirds (63 per cent) of businesses admitted that recession discounts were introduced "without fully understanding" the impact on demand.

The annual consumer price index inflation rose 3.2 per cent in October – the Bank of England has warned that inflation is likely to hit 3.5 per cent over the first half of 2011, as a number of pressures kick in.

Surge of festive shoppers

* Retailers are breathing a huge sigh of relief, with early data suggesting shoppers came out in force to do their Christmas shopping on Saturday and Sunday ahead of another cold snap at the end of this week.

* Some of the UK's biggest shopping centres, including Sheffield's Meadowhall, The Trafford Centre, near Manchester, and Kent's Bluewater, enjoyed a bumper weekend, with footfall up strongly on the previous week.

* Gordon McKinnon, director of operations at The Trafford Centre, said that footfall on Saturday and Sunday was up 10 per cent on the same weekend last year. He said: "Today [Monday] again has been exceptionally busy – it does look as if Christmas is coming late and people, who have not been able to get to the shops because of the snow and ice, are now deciding they have to do their Christmas shopping."

* Experian Footfall said the number of shoppers in non-food stores rose by 5.6 per cent and 3.8 per cent on Saturday and Sunday, respectively, compared with the previous week.

* Meadowhall said that footfall surged by 20 per cent on Saturday on last year's figure. Darren Pearce, Meadowhall'scentre director, said: "We are still waiting for final sales figures, but feedback from the retailers suggests that this has been the strongest weekend in terms of trade so far this year."

* Bluewater said that 250,000 people had visited the centre at the weekend, up on 220,000 in 2009. Andrew Parkinson, the general manager at Bluewater, said: "We are expecting next weekend to be even busier as the final weekend before Christmas."

* However, Experian Footfall said that the overall footfall for the UK on Saturday was down by 1.5 per cent and 1.1 per cent on Saturday and Sunday, suggesting that lingering snow in Scotland and other parts of the frozen north are still hindering shoppers.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Recruitment Resourcer

£20000 - £21000 per annum + uncapped commission: SThree: As a graduate you are...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: A Customer Service Advisor is r...

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Day In a Page

Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot
Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

Poldark star Heida Reed

'I don't think a single bodice gets ripped'
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn