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VAT cut and stamp duty holiday begin to stir UK economic activity

Chains such as Nando's have unveiled plans to cut prices as a result of the lower VAT, while estate agents are reporting surges in house buying activity

Starbucks - VAT and stamp duty cuts begin to stir UK economic activity

Recently announced reductions in stamp duty and Value Added Tax (VAT), unveiled in the summer statement last week by Chancellor of the Exchequer, have begun to feed through into the British economy amid hopes the measures will encourage consumers to start spending again and steer the UK out of its pandemic-inflicted slump.

On Wednesday, coffee chain Starbucks Corp (NASDAQ:SBUX) and fast food giant McDonald’s Corp (NYSE:MCD) said they will be cutting their prices in response to the VAT reduction, which until January 12 will reduce the amount of tax added onto to accommodation, tourism and hospitality sector goods such as food and drink to 5% from 20%.

READ: UK mini-budget: Main announcements from the summer statement

Other outlets such as Nando’s and pub chain JD Wetherspoon PLC (LON:JDW) have also said they will reduce prices on food and drinks to pass on the VAT saving to customers, however not all firms will pass on the benefits, instead using the savings to shore up their own finances.

The measure is likely aimed at keeping companies afloat rather than giving consumers a chance to spend less on products, with fears that many businesses are already on shaky ground after months of closure during the UK’s lockdown.

Hospitality groups may also be awaiting a possible boost in spending from the Chancellor’s ‘Eat Out to Help Out’ scheme, through which the government is offering 50% off to diners for food or non-alcoholic drinks to eat or drink in up to £10 per person from Monday to Wednesday throughout August.

Stamp duty holiday

Meanwhile, the housing market is also showing signs of life after Sunak also said in the summer statement that the threshold to pay stamp duty on home purchases will be raised to property’s worth more than £500,000 from its previous level of £125,000.

Property listing site Rightmove PLC (LON:RMV) said the move had already sparked a small boom in the property market, with buyer inquiries spiking across certain areas of the UK including Milton Keynes and Watford.

The biggest increase has come from homes valued between £400,000 to £500,000, where the benefit of the cut is greatest.

The website said in the first half hour after Sunak announced the policy on, traffic jumped by 22%. For the whole day, July 8, visits to the site a record of 8.5mln.

“This move will help to keep the nation and wider economy moving because keeping the current momentum going will help prevent destabilising falls in property prices as unemployment grows, and enable a quicker economic recovery. Lockdown prevented 175,000 would be sellers from coming to market so we hope this Stamp Duty holiday will provide the spur for those missing movers to come to market”, said Rightmove’s property expert Miles Shipside.

Quick facts: JD Wetherspoon

Price: 985 GBX

LSE:JDW
Market: LSE
Market Cap: £1.19 billion
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