Economic Influences on Business

The Economy Economic Variable Present Rate Affect on the Economy Evaluation-Affect on specific firms Trade Cycle Interest Rate Exchange Rate Inflation Public Spending Tax .

Present fallen to 3.0% Fairly high The Economy Economic Variable Present Rate Affect on the Economy Evaluation-Affect on specific firms Trade Cycle Interest Rate Exchange Rate Inflation Public Spending Tax Recession Investment, consumer spending down. Unemployment high, business profits falling closure rising. Little affect on necessities Capital/luxury adversely affected Slight increase for inferior Low – base rate 0.5% Encourages spending, borrowing and investment. Good for business. Good for companies with high debt. More goods bought on credit. £1: euro 1.2 £1: $1.5 £ weak Positive for UK exporters Detrimental for UK importers such as Matalan Weak pound, generally good for exporters, imports more expensive. Last year 5% Present fallen to 3.0% Fairly high Cut in peoples’ living standards, workers’ demand higher wages, higher cost of raw materials. Particularly detrimental for firms where unions are strong or where goods are rising rapidly e.g. oil, hence transport Large cuts Reduced spending in the economy, unemployment, recessionary effect It will hit construction hard and businesses dependent on public sector contracts Increased to VAT 20% Reduces spending Retail

Has been high at 5% now low at just over 0% The Economy Economic Variable Present Rate Affect on the Economy Evaluation-Affect on specific firms Trade Cycle Interest Rate Exchange Rate Inflation Public Spending Tax Recovery 2.5% Growth Investment, consumer spending increasing. Unemployment falling, business profits rising. Little affect on necessities Capital/luxury starting to pick up after recession Inferior still doing well after rec. Low – base rate 0.5% Encourages spending, borrowing and investment. Good for business. Good for companies with high debt. More goods bought on credit. £1: euro 1.2 £1: $1.5 £ weak Positive for UK exporters Detrimental for UK importers such as Matalan Weak pound, generally good for exporters, imports more expensive. This has stopped eroding the value of peoples’ real wages. Allows firms to forecast and price more accurately. There has been falling prices in oil that has hit the oil companies, but benefited most other companies e.g. airlines, even supermarkets Has been high at 5% now low at just over 0% Large cuts Reduced spending in the economy, unemployment, recessionary effect It will hit construction hard and businesses dependent on public sector contracts VAT 20% Reduces spending Retail