Grocery and general merchandise giant Asda intends to shelter shoppers from the worst of the VAT rise in the new year.

Asda chief executive Andy Clarke told The Sun newspaper that the Walmart-owned retailer would do “everything we can” to absorb the 2.5 point VAT increase, which will come into force on January 4 2011.

He said: “How? It’s simple. The more we reduce our costs, the more we can keep prices low.”

Retailers generally face a raft of cost pressures ranging from the rising expense of sourcing from the Far East to higher commodity prices which, combined with the VAT increase, are likely to lead to higher prices for consumers later this year.

Separately, Asda has emerged as the biggest discounter of alcoholic drinks in the opening days of the World Cup.

On Tuesday, the day before England beat Slovakia, Asda’s prices on a range of brands were 7% lower than the previous year, research by reported in The Independent showed.