Scottish Chambers calls for temporary reduction in VAT as inflation hits 2.9 per cent

Latest official data released today has shown the UK inflation rate rose to 2.9 per cent in May, up from 2.7 per cent on the previous month.

The figure from the Office for National Statistics is the highest since June 2013 and keeps inflation above the Bank of England’s 2 per cent target.

The ONS said one of the main reasons for the rise was the cost of foreign package holidays for British tourists.

Another factor was the price of computer games and equipment, which are usually imported.

They are part of the recreational and cultural goods and services sector, where prices rose overall by 0.9 per cent between April and May compared with a fall of 0.4 per cent a year ago.

Food and clothing also went up in price slightly after falling 12 months ago, with the sugar, jam, confectionery and children’s clothing markets mainly responsible.

There were also rises in the cost of furniture and household goods, and electricity, with further price increases coming into effect in May.

News of the rise has reinforced the case for a temporary reduction in VAT, according to the Scottish Chambers of Commerce.

Liz Cameron, chief executive of Scottish Chambers of Commerce, said: “This week we have learned that household spending has fallen for the first time in four years, which comes as no surprise given continued high inflation, which has been outpacing increases in earnings. This is an early warning sign that there is a real threat to our economy from a decline in consumer spending power.

“Although the political situation at Westminster has not yet fully settled down following last week’s General Election, the continued elevated rate of inflation above the Government target of 2 per cent calls for urgent action to address the impact this is having on businesses and consumers.

“At the time of the financial crisis and recession in 2008-09, the UK Government reduced VAT on a temporary basis in order to bolster consumer demand and it is time that such a move was considered again to give people the confidence to spend and to reduce the pressures on business margins. Everything possible must be done to maintain consumer confidence in these uncertain times to provide a route to business growth and economic prosperity.”