Business overview – the next six months

The meeting with the main players of the MPC will be on Wednesday and Thursday so all you designers out there struggling on to pay back your interest rates on your bank overdraft – hold on! The current rate is 4.5% and some pundits believe that for January it will remain at this level but a cut is almost inevitable for February.
 
The Treasury forecasted UK growth of between 2%-2.5% for 2006 which was ahead of most European partners. However, the growth has slowed down and now it appears, for the first time since the 1990s, UK will be lagging behind most of the euroland economies.
 
On a world wide scale what is happening to the growth of the UK? Look at China currently recording almost 9% growth in GDP; India is second in the league tables at 7.5% and then the United States rolling in a 3.2% increase.
 
When I was sitting my business studies degree I couldn’t see what all the complexities of GDP was about. In my book it was simple – to stimulate economic activity reduce interest rates, increase public spending, provide an infrastructure of business support to help small industries, invest in manufacturers and of course slightly increase taxation to pay for it all – but then – money makes money doesn’t it?
 
The multiplier effect is when a working individual has money to spend  in their pocket – disposable income. They go shopping, spend the money which rings the sales in the tills and enables the shop to buy more products to stock up. The shop puts in an order with a manufacturer and in turn the manufacturer puts in an order for raw materials. It’s business! Then we had hyper inflation and I could see my approach was somewhat simplistic!
 
But the fundamentals are there for all to see. Manufacturing has not been a source of strength for the British economy in recent years with the service sector markedly more buoyant. But the tide is turning and the growth can not be maintained by the reliance of the service sector alone. Manufacturing in the euroland is beginning to gain momentum and our consumer spending is slowing down. In 2004 consumer spending was 4% greatly propping up the economy however the indebted consumer began tightening the purse strings when faced with rising house prices, lack of job security and the realisation of the increasing debt burden.
 
So a note of caution to all small business out there. Keep an eye on your interest rates and keep debt to a minimum. Without strong consumer buying power orders will not be forthcoming from retailers. Most designers that we mentor only produce a showman’s collection and then sell from the samples. Do not go ahead and make stock without forward orders unless you are confident of your selling base. 2006 is going to be a difficult year with more online growth than high street retail sales being recorded. Be innovative in your approach to selling…think of new avenues to sell to even if they are not traditional markets e.g markets – at the end of the day money is money and you can always cut out your labels and have a secondary “cheaper” diffusion line.
 
Cash flow is King!
 
Jenny Holloway
Industry Advisor
London Fashion Forum