VAT rise hits German confidence

The VAT rise was introduced at the beginning of January

German business confidence slipped in January, as companies felt the impact of a rise in value-added-tax rates.

According to research group Ifo, its Business Climate index fell to 107.9 points, from 108.7 points in December.

The decline surprised analysts, many of whom had predicted a rise in business sentiment after the key barometer hit a 16-year high last month.

Sales tax in Europe's biggest economy was increased to 19% at the beginning of January to help boost state funds.

The Ifo institute said it expected the VAT rise to dampen consumer spending over the coming months.

However, Ifo economist Klaus Abberger said that he expected the economic situation would pick up again after that period.

The Munich-based Ifo economic research institute polled about 7,000 German firms for its monthly survey.