SCOTTISH Chambers of Commerce has called on the UK Government to consider cutting VAT to boost consumer demand, as official figures showed that inflation grew at 2.3 per cent in March.

The Consumer Prices Index (CPI) rose above the Bank of England’s target two per cent again last month, with the Office for National Statistics noting that rising prices for food, alcohol, tobacco, clothing and footwear were among the main contributors.

Although inflation, which has risen steadily on weaker sterling since the Brexit vote, is expected to remain above the two per cent target, Scottish Chambers urged the Bank of England to resist the temptation to hike interest rates.

Chief executive Liz Cameron said a rate rise would be “premature”.

Ms Cameron said: “Scotland’s economy is contracting and growth in the UK economy is expected to slow this year. This means that a supportive business environment needs to be maintained, with the UK and Scottish Governments taking whatever action is necessary to reduce the cost burden on businesses.

“The continued weakness in sterling may be positive news for exporters but it is beginning to track through into rising costs for manufacturers and retailers and this is resulting in higher costs for consumers. It may be time for the UK Government to look again at rates of VAT, with a view to providing a boost to consumer demand at a crucial time for the economy.”

Laith Khalaf at stockbroker Hargreaves Lansdown said: “‘Inflation may be steady, but it’s still currently outpacing wages and interest rates, which spells trouble for households and cash savers. The inflationary squeeze that’s coming is going to mean consumers have to spend more at the check outs and petrol pumps.”