The UK economy emerged from recession at the start of 2010 although economic growth was so fragile that many economists feared that the country might be plunged into a second phase of recession as the government’s austerity programme starts to take effect. This phenomenon of a second recession close on the heels of an earlier one is known as a double dip recession and we saw in the statistics released in January 2011 that the UK experienced negative growth in the fourth quarter of 2010. A repetition of the figures when the next set of quarterly figures is released will mean that the UK is again in recession.
At a micro-level we can see the disappointing figures released by the retailer Carpetright. Notice that the BBC News article refers to a profit warning from Carpetright. This is a reference to the requirement for public limited companies to give advance warning of disappointing results to creditors and shareholders. Notice also the statistics are based on what are known as “like for like sales”. This means the figures are based on a comparison of sales in the same portfolio of stores for the two time periods under consideration, thus eliminating figures from newly opened and newly closed stores.
It is claimed that the company has been hit by a combination of factors. Firstly the sluggish mortgage market has led to a fall in house sales. The relevance of this point to carpet sales is that when people move house they often purchase new carpets and, unfortunately for Carpetright, people have not been moving house in large enough numbers. Secondly problems over household credit impacted upon sales. If consumers have “maxed” out on their credit cards and are unable to obtain credit from other sources then they will not be able to buy expensive floor covering. Moreover, people who are unemployed or fear unemployment will be deterred from buying expensive floor covering on credit. But the reference to VAT is less easy to accept. The rise in VAT from 17.5% to 20% only came in January 2011. Many stores experienced a pre-Christmas boom as customers sought to avoid the VAT rise.
