UK left hanging by General Election

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It has been just under a month since the Great British public delivered a hung parliament, the first such general election result since 1974. The UK is now run by a broadly 'centre-right' coalition government, and the past few weeks has seen the two main coalition parties – Conservatives and Liberal Democrats – negotiating to find common ground for their future policies, particularly fiscal ones. You may well be asking yourself what this has got to do with the toy trade…well the answer is 'quite a lot actually'.

The biggest task faced by the new government is the rather pressing need to reduce a massive budget deficit. The £6.2 billion of urgent cuts announced last week hardly make a dent in the overall figure, which some observers have predicted could hit a whopping £200 billion this year, or 18 % of the country's GDP. Basically, going forward money is going to be tight. Cuts will have to be made, and lots of them. Cuts which could well result in significant numbers of job losses,, and consumer confidence taking another nosedive. And we all know what happens to retail sales when consumer confidence is low…

Yes, the toy industry is partially protected by the old adgae that parents don't like their children to suffer in the hard times. But if the financial crisis of 2008/09 proved anything, it's that the toy trade is recession resistant rather than recession proof.

But before the inevitable cuts bite, the UK has two particular financial issues to grapple with in the short-term: 1. Since the election the pound has fallen sharply against the dollar – and therefore also the Hong Kong dollar, the currency in which the vast majority of UK toys are purchased. If it stays like this, price rises will become inevitable. 2. It has been widely predicted that the new government will raise VAT (i.e. our purchase sales tax) to 20 or even 22%. If this happens, retailers are concerned that it will further dampen consumer sales.

All of these factors are outside of the toy industry's control. But they could have a significant bearing on the toy retail landscape in the UK over the coming months.

On the plus side, first quarter sales in the UK were extremely positve. Everyone is now hoping that this positive performance continues and the country doesn't get dragged into the feared 'double dip' recession.

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