Only 53 per cent of 250 people surveyed knew that VAT is set to increase in January next year, while 85 per cent overestimated how much prices will rise as a result, according to the research from consultancy firm Simon-Kucher & Partners.

One quarter of respondents wrongly guessed that a £5 product will increase to £6. The correct price, which only 15 per cent of respondents estimated correctly, would be £5.11.

Stephan Butscher, managing partner at Simon-Kucher advises, ‘Companies should develop intelligent strategies on how best to pass on the increase to customers.’

The firm recommends that companies reassess all their prices before the VAT rise from 17.5 to 20 per cent comes into effect, rather than waiting until January then increasing all prices by the same amount.

Adds Butscher, ‘We expect price alterations of between 0 and 15 per cent.’

Almost nine-tenths of the survey’s respondents are aware that VAT will increase, while a majority claim their spending habits will be unaffected.