Retailers are beginning to put up prices before the rise in VAT in January as they prepare for significant inflation next year.

A survey of 30 leading retail bosses - including Marks & Spencer chairman Sir Stuart Rose, and Lord Wolfson, the chief executive of Next - has found that 60% expect to pass the majority of the 2.5% rise in VAT on to customers and that a further 17% will pass on at least part of it.

Some said that that they would raise prices on January 1.

Derek Lovelock, the chief executive of Aurora Fashions, owner of chains including Karen Millen and Oasis, said: “Across the market, people will have to put prices up as the [VAT] increase can’t be absorbed in the margins. People are already preparing for that now.”

He said the Aurora chains had not yet put up prices.

In addition to the VAT rise, retailers face increasing costs due to currency exchange rate fluctuations, oil and cotton price rises as well as rising labour costs in the Far East.

The survey, conducted by Kraeb Gavin Anderson for The Times, found that the proportion of retailers that feel more negative in their outlook than six months ago had risen to 43% in August from10% in February.

About 70% of retailers said they expect Christmas to be flat this year.

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