Friday, 12 November 2010

Sod austerity, I want a new sofa!

I’m struck by the mixed messages coming from business at the moment. On the one hand I act for a company in the engineering sector who want to put out a release about how well their sales are going. On the other I hear from the MD of a consumer pharmaceuticals company that sales have fallen off a cliff in the last two months.

What is going on? I think it is becoming increasingly clear that this is going to be a two-speed recovery with B2B businesses coming out of it a bit quicker than those facing the consumer. In many respects this was to be expected as the Bank of England tries to deleverage consumer debt, at a slow but sustainable rate, to make sure that everything doesn’t go pear-shaped again.

However, that picture is not uniform across all sectors. I’m told furniture retailers are doing incredibly well at the moment (presumably the UK consumer has been unable to live with that lilac sofa a moment longer!) whilst I understand that one of the major contractors to the water industry has put everyone on a four day week due to concerns about the impact of spending cuts on Framework agreements.

Of course the big issue is the potential effect of the VAT increase on consumer confidence. Again, there are two differing views here, with the doom-mongers predicting the increase will be the final nail in the coffin.

My own view, that confidence is strong enough to ride the increase out, was reinforced by a client a few days ago. He believes that there are now such wide price bands on most products that consumers will just trade down to a cheaper option. Instead of that enormous 52 inch high definition TV which has to be bolted to the wall, many of us will settle for a more modest 42 inch for the time being.

So when the kids complain that they have got LEGO for Christmas instead of the new Xbox Kinect you should blame austerity measures. Of course they might spot a flaw in that argument when the new sofa arrives which you bought in the Boxing Day sales to avoid the 1st January VAT rise.

Good luck explaining that one.


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