According to the British Retail Consortium, merchandisers have absorbed some of the impact of the VAT rise on prices although not completely. The consortium also warned that with the inflation still on the rise such action cannot last for an indefinite period.

The annual rate of shop price inflation reached 2.5 per cent in January from the previous 2.1 percent in December, while food inflation going up to 4.6 percent (0.6 percent increase) and 1.3 percent rise in non-food items against 1.1 per cent. In this light, Monetary Policy Committee of the Bank of England assembled to talk about its next shift on interest rates in an effort to gain credibility among the markets and consumers.

The extent to which the global commodity prices have been affected by unrelenting high and rising inflation has affected, especially oil and food prices being run into the high street is of crucial importance to the Bank, while it is extremely difficult to portent.

While the next bulletin on consumer prices being from the Office for National Statistics next Tuesday might give additional information on the impact of the VAT rise, the Bank has estimated the rise in CPI inflation is in the range of half a percentage point and 1.5 percentage points, for the last two years.