Shopping in the eurozone

Although the UK’s economic recovery is underway, the situation remains fragile and the risks of a relapse cannot be ignored, warns the British Chambers of Commerce (BCC) in its recent Economic Forecast. The BCC, the national body for

businesses, says that the worsening eurozone debt crisis and upheavals in global financial markets will increase the threats facing the UK.

The forecast assumes that the new coalition government will adopt more forceful measures to slash the UK’s budget deficit through public spending cuts and tax increases – VAT, for instance, is predicted to be raised to 20% within the next 18 months – which is likely to impact on fashion retailers.

David Frost, Director General of the BCC, commented: “The UK economy is now recovering. But, the improvement is fragile, businesses large and small are still facing considerable pressures, and there are significant risks posed by the current crisis in the eurozone.”

He said: “To ensure this recovery lasts, the government must demonstrate an unwavering determination to support the vital role of wealth-creating businesses. Rebalancing the economy towards the private sector must be at the very heart of June’s emergency budget – with businesses encouraged to invest, grow and create jobs.”

“The coalition must avoid new business taxes and measures that might damage enterprise and entrepreneurship. They will have to think very carefully about what their exact plans are around Capital Gains Tax and the scrapping of certain corporation tax allowances that incentivise investment,” he added.

Commenting, Mike Flanagan, CEO of Clothesource Limited, told just-style.com: “According to official statistics, the EU as a whole has seen higher clothing sales (up 2% in 2008 and 1.2% in 2009) while US sales have been in decline.”

Flanagan added: “Overall, Europe really hasn't had the recession in clothing sales that the US has suffered. The spate of retail bankruptcies - from Arcandor to Woolworths - was provoked by creditors pulling support during the banking crisis, not by collapsing sales.”

High clothing sales could be set to change with a government rigidly focused on cutting debt; a concern also on the mind of Flanagan: “For the first year or so (and possibly longer) public spending cuts mean fewer people with cash in their pockets” to splash out.

Tax rises could also prompt the UK’s largest employer to face hefty costs and undermine its ability to maintain and create jobs. David Kern, BCC Chief Economist, shed light on this point: “Unless our labour market remains flexible and adaptable during the recovery, there is a risk that low productivity will persist, damaging the UK’s medium-term growth prospects. To achieve a sustainable improvement in Britain’s productive potential, recent adverse trends in the labour market must be reversed. Inactivity needs to decline, full-time employment must grow, and private sector employment has to increase.”