The Government has made no secret of its commitment to start cutting the country’s budget deficit this year. Even with these cuts our eye-wateringly big national debt will continue to rise for several years – see previous posting on this.
The impact of these cuts on a fragile economy will be profound and could well take us back into recession. But I believe that the coalition has no choice; as a country we’ve maxed out our credit cards to pay the mortgage; enough is enough.
August retail sales were a disappointment, falling 0.5% from July. It turns out that the July figures were overly optimistic and had to be revised down from +1.1% to + 0.8%. The August non-food sales figure was the most informative at –0.7%, suggesting that consumers are tightening their belts in anticipation of the looming storm. It’s a similar picture in the States, where consumer sentiment fell to its weakest level in more than a year.
Retail sales are a powerful driver of the economy. They are more important than other indicators such as interest rates, inflation and house prices. The more we buy in the shops, the more widgets industry has to make, the more raw materials are demanded and so on. When consumers stop buying, industry suffers. When industry suffers, jobs are lost, tax revenues decline and social security costs rise.
The looming loss of 600,000 public sector jobs is bound to have a damaging effect on the economy and I doubt that industry will take up the slack.
So what does this mean for business? Hope for the best, plan for the worst.
In my next posting, I will include a checklist of the things adaptive, resilient organisations should be considering at times like this.