Less Than Two Weeks Away From Vat Rise

[CockneyTrader]

On the 1st Jan 2010 everything (food, childrens clothes excluded) will increase by 2.2%. I will be keeping a close eye on price hikes.

For example, a small coffee at Costa is currently £2, add VAT hike and it should be £2.044. I'm betting it will increase to £2.10, £2.15 or even £2.20.

On the other end of the spectrum, a Porsche Cayman retails for £36479, add price hike and it should be £37281.538.

I believe retailers will hike beyond 2.2%. The result on consumer confidence will be negative, people will just stop spending.

What prices are you keeping an eye on?

[spivT]

What prices are you keeping an eye on?

hot tubs and ferrari's.

[betterToDo]

Our product which is sold on the internet will be remaining the same price, mainly because I have to rewrite the order system for other reasons and I'm ****ed if I'm doing it on New Years Eve.

[The Ayatollah Buggeri]

The result on consumer confidence will be negative, people will just stop spending.

Furthermore, I suspect people will have been bringing forward major expenditures with a significant VAT component. I certainly have: I've spent £500 on car maintenance and parts in the last month (replaced all four tyres, the battery, plugs and HT leads, antifreeze, brake fluid, pads, discs and drums, oil, filter, two wheel bearings and a few other bits and pieces), most of which in normal circumstances I would have held of on until various points next year. The idea was to replace all the big ticket parts that are likely to wear out in the next 6-12 months, the long-term game plan being to keep this car for two more years, and so this'll be the last round of heavy duty maintenance to see it out. That bill would have been around £550 in January. Multiply that by everyone else who'll bring forward spending on a major item (holiday, washing machine etc.) and I can see the retail economy dropping off a cliff next month: which, paradoxically, may limit the ability of retailers to hike prices, and even force some to eat at least part of the VAT hike.

[browneconomy]

It will be interesting to see how the official figures reflect the rise. If 2.5% were added to everything then CPI figures will becloses to 4.5%! - surely that should trigger positive movements in interest rates?

I suspect many retailers (as in VAT point of sale tax collectors) will simply absorb the VAT if only to keep to well established pricing points (ie £4.95 / £399.00 etc)

[interestrateripoff]

Furthermore, I suspect people will have been bringing forward major expenditures with a significant VAT component. I certainly have: I've spent £500 on car maintenance and parts in the last month (replaced all four tyres, the battery, plugs and HT leads, antifreeze, brake fluid, pads, discs and drums, oil, filter, two wheel bearings and a few other bits and pieces), most of which in normal circumstances I would have held of on until various points next year. The idea was to replace all the big ticket parts that are likely to wear out in the next 6-12 months, the long-term game plan being to keep this car for two more years, and so this'll be the last round of heavy duty maintenance to see it out. That bill would have been around £550 in January. Multiply that by everyone else who'll bring forward spending on a major item (holiday, washing machine etc.) and I can see the retail economy dropping off a cliff next month: which, paradoxically, may limit the ability of retailers to hike prices, and even force some to eat at least part of the VAT hike.

I would agree that anyone with the cash to do this will have done so.

It would seems likely this would help make GDP for Q4 positive. If demand has been brought forward significantly and we still haven't got a 0.3%+ GDP figure for Q4 we are in deep trouble. Demand I fear will sharply drop off after Xmas.

[porca misèria]

Furthermore, I suspect people will have been bringing forward major expenditures with a significant VAT component.

New home 'puter with Atom processor and low power consumption. New porta-puter, Nokia N900. Trying to decide on new e-book reader. That's a lot of electronics I won't be buying when VAT goes back up[1].

Alas, thwarted over various items of clothing that I haven't been able to get locally. I consider going into town-centre shops in this season too high a price to pay for a few quid less VAT. So spending not entirely dead in the new year.

[1] for the benefit of HPC's puritans, that's on a creditcard that gets paid in full by monthly direct debit. No interest to pay, but cashback to me.

[woof]

It will be interesting to see how the official figures reflect the rise. If 2.5% were added to everything then CPI figures will becloses to 4.5%! - surely that should trigger positive movements in interest rates?

I suspect many retailers (as in VAT point of sale tax collectors) will simply absorb the VAT if only to keep to well established pricing points (ie £4.95 / £399.00 etc)

No, what will in fact happen is the rise in CPI/RPI will be excused as a temporary blip caused by a one-off factor, and will be overlooked so far as monetary policy is concerned. Any letters between the Governor and the Chancellor (the letters we've seen before that may as well be written by the same person) will confirm this.

Needless to say, when the reverse happened, the drag on the RPI/CPI caused by the same temporary factor required savage interest cuts to stave off deflation.

[Sour Mash]

I suspect many typical businesses will try to absorb the increase - assuming they ever actually cut their prices when VAT was reduced in the first place. However, there will be a small but measurable increase in prices generally.

Also, it's going to squeeze the retail sector whichever way as they either take the hit in margin or risk reduced sales volume.

On top of that, once the scrappage ends then new car sales are going to come under real pressure. Even 2.5% is a significant chunk of cash when paying new car prices and the scrappage was really driving a lot of sales (demand brought forward).

[Sour Mash]

No, what will in fact happen is the rise in CPI/RPI will be excused as a temporary blip caused by a one-off factor, and will be overlooked so far as monetary policy is concerned. Any letters between the Governor and the Chancellor (the letters we've seen before that may as well be written by the same person) will confirm this.

Needless to say, when the reverse happened, the drag on the RPI/CPI caused by the same temporary factor required savage interest cuts to stave off deflation.

+1

Strange how no-one in the media commented how the VAT cut was actually deflationary (in terms of the chosen measurement indices) at a time when the government was trying to scare us about deflation. There will be plenty of guff about how the shocking inflation figures for this coming Jan will have been due to its reversal though. Should be a good excuse for a month or two until they come up with something else to distract the people.

[cybernoid]

Furthermore, I suspect people will have been bringing forward major expenditures with a significant VAT component. I certainly have: I've spent £500 on car maintenance and parts in the last month ... That bill would have been around £550 in January.

Increase of 2.2% on 500 quid makes it 511 quid. An insignificant difference which I expect would have been more than made up for by simply servicing your car as and when required and getting the maximum lifetime out of the parts.

It made naff all difference when it was cut and it will make naff all difference when it is put up again. It's just a headache for anyone raising an invoice.

[council dweller]

I remember when consumption tax was raised from 3% to 5% in Japan. Many people bought stuff before the rise and business was dead for the next couple of months.....so there were good discounts to be had, 10, 20%....

Expect to see this on white goods, cameras, phones....the usual suspects.

[The Ayatollah Buggeri]

Increase of 2.2% on 500 quid makes it 511 quid. An insignificant difference which I expect would have been more than made up for by simply servicing your car as and when required and getting the maximum lifetime out of the parts.

Once you factor in the mark-ups by stealth (especially on the labour for the tyre replacement), I suspect it would have been a lot more.

It made naff all difference when it was cut and it will make naff all difference when it is put up again. It's just a headache for anyone raising an invoice.

It made naff all difference to sales of consumables and small-scale goods and services, but I suspect it did stimulate big-ticket purchases - as with the scrappage scheme, demand brought forward.

[huw]

New home 'puter with Atom processor and low power consumption. New porta-puter, Nokia N900. Trying to decide on new e-book reader. That's a lot of electronics I won't be buying when VAT goes back up[1].

OT but you might want to hang on until the CES on Jan 7 to see what Ray Kurzweil's Blio software is like.

[headrow]

I would agree that anyone with the cash to do this will have done so.

It would seems likely this would help make GDP for Q4 positive. If demand has been brought forward significantly and we still haven't got a 0.3%+ GDP figure for Q4 we are in deep trouble. Demand I fear will sharply drop off after Xmas.

You reckon?

I certainly won't.

If my car needs a new battery , tyres or whatever else i'll wait until the time that i need them before i spend/waste any money on them. Same with a washing machine , if mine breaks down ,i'll take a van to B&Q and buy another , i won't buy one now just because i can save £4 if mine does happen to pack in this year.

If thats 'sheeple think' then so be it. I call it common sense.

[council dweller]

Increase of 2.2% on 500 quid makes it 511 quid. An insignificant difference which I expect would have been more than made up for by simply servicing your car as and when required and getting the maximum lifetime out of the parts.

It made naff all difference when it was cut and it will make naff all difference when it is put up again. It's just a headache for anyone raising an invoice.

Would you say it's worth me buying a new 3.50 oil filter (I have a stock of oil) or should I wait until 2011 when I might actually need it?

I suppose it depends on what gives you peace of mind.

Edited December 20, 2009 by council dweller

[evictee]

It will be interesting to see how the official figures reflect the rise. If 2.5% were added to everything then CPI figures will becloses to 4.5%!

- surely that should trigger positive movements in interest rates?

A positive movement in the inflation target more like...

[Spot]

I would agree that anyone with the cash to do this will have done so.

It would seems likely this would help make GDP for Q4 positive. If demand has been brought forward significantly and we still haven't got a 0.3%+ GDP figure for Q4 we are in deep trouble. Demand I fear will sharply drop off after Xmas.

I'm not so sure...

Anyone with a passing interest in these matters may have brought forward expensive purchases (I did and I love my new PRS Prism !) but chatting to friends and colleagues at work, most seem oblivious that VAT is going back up to 17.5%. I was quite shocked. So I don't think we'll see much drop in demand due to this but I do expect demand to drop off from Feb onwards for many other reasons. Or maybe not... I already expected things to be a lot worse and it's not materialised I believe due to the smoke & mirrors of the government.

Merry Christmas!

[righttoleech]

Would you say it's worth me buying a new 3.50 oil filter (I have a stock of oil) or should I wait until 2011 when I might actually need it?

I suppose it depends on what give you peace of mind.

You will save 7.7p. It depends whether you have to drive or wear out shoe leather to purchase the filter. Don't think about it too long or there is a danger that the cerebral activity may cause you to burn up food negating any saving. Worst case scenario is that you decide it is not worthwhile AND burn up food in the process.

[council dweller]

You will save 7.7p. It depends whether you have to drive or wear out shoe leather to purchase the filter. Don't think about it too long or there is a danger that the cerebral activity may cause you to burn up food negating any saving. Worst case scenario is that you decide it is not worthwhile AND burn up food in the process.

I think you're holding out on me here, what about opportunity cost and loss of interest if the money is placed in a saving account...just 2 factors you have failed mention. Also, as I grow a large percentage of my own food, do I have to calculate the cost of my own labour? And is the fact that I'm a tight bugger a factor to consider or is it the same for everyone?