Relief for retailers over VAT blow

Published:  24 June, 2010

LONDON: The chancellor's 20% VAT hike bombshell rattled retailers but the six-month delay should help them weather the storm, city experts said.

The decision not to enforce the rise until January 4 – or to extend the scope of VAT – came as a relief to a sector that had been preparing for the worst.

The reaction on the stock market was positive, with shares in most major retailers moving higher on Wednesday. Shares in B&Q owner Kingfisher rose 2%. Analysts said the decision should be seen as the best of a bad situation, although some retailers are likely to take a bigger blow from the move than others.

Jean Roche, retail analyst at Panmure Gordon, said the VAT hike and budget as a whole was "rather gentler on the general retailers than we or the market expected".

"Given six months warning, the retailers are likely to be able to plan for this - in fact, we think that retailers are already benefiting at the gross margin level from pre-emptive price rises," she said.

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