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Questions - How Inflation & Brexit Shape UK’s Small Businesses
1. Explain the Impact of global inflationary pressure on the cost of living in Local town
Global inflationary pressures refer to the increase in the prices of the goods and services in the country which leads to increase the cost of living of population. Inflation in country creates high impact on the economy. It has been identified that London has been highly impacted by the global inflationary pressure. London was experiencing high percentage of inflation in Oct 2022 which amount to 11.1% (Inflation rate in London, 2022). There are various reasons which include rise in inflation rate in the town as it has been identified that after corona virus, demand from consumer goods has increased in comparison to its supply which is leading to increase in the price of goods and services. Inflations lead to decreasing purchasing power of individual which eventually led to increasing cost of living and impact on standard of lives. Impact of inflation on the working of London could be understood by following points:
Reduction in purchasing power:
With increasing in the rate of goods and services of country, purchasing power of population decreases. It refers to as consumer will get fewer amounts of goods by spending the equal amount as earlier. It will lead to increase in cost of living so now people need to incur high amount on purchasing of necessity goods (Breinlich et al, 2022). By this individual will left with small amount of money that can be used to spend on luxury goods. Next is the clothing brand in London which provides high quality goods to its customer. The store is highly impacted by global inflationary in the country as people were left with less amount of income which made it difficult for them to spend on purchase of luxury products. In 2022, company had suffered the loss of 3 % in their total profit as compare to previous year which reduces their profitability.
Inflation raises interest rates in country:
For controlling inflation in the country government focuses on the increasing interest rate for borrower’s which will help in reducing money supply in the country. This will eventually lead to increase in the cost of living for the population as people could not afford to take loan for fulfilling their needs. From the example of Next clothing it could be understand that increase in interest rate was impact on the working of organization. Company faces problem in raising additional capital as the interest rate increase which will impact cost of the organization.
It creates unemployment in the country:
Increase in inflation will directly impact the rate of unemployment in the country. Inflation leads to decrease in the sales of the company which will impact the cost of organization. Company focuses on reducing the number of employee in the organization which will increase unemployment rate in the country (Dayan et al, 2020). This will eventually lead to decrease in the financial condition of population and reduces the income of individuals. Next clothing has been impacted by the inflation in the country as they aim at reducing the cost for company by removing some employees. Meanwhile, this results into increase in the rate of unemployment within London.
Inflation increase prices of goods and services:
Inflation in the country impact the lower income peoples the most. They are currently living on the minimum expenditure and raising in the price of goods and services imbalance their budget which impacts their financial position. This made it difficult for them to purchases the necessity goods as it led to decrease in real income of the population. From the case study of next clothing stores it can be identified that comapnuy has increased the prices of their goods by 4 % in 2022 for maintaining their stability in industry (Increase in prices of Next clothing, 2023). It has been identified that company has experience reduction in sales by 2.6% from previous year. This indicates that due to inflation there is increase in the cost of living of individual which impacted overall economy of the town.
Inflation leads to increase in import:
As the prices of goods and services within country increases, citizens are more focused toward importing the goods from other countries. Sales of the domestic companies decreases which impact their stability in the industry. Further, it also directly impacts the profitability of small business which eventually leads to business closure. Form the example of Next clothing it can be identified that export form the company has been reduced in 2022.
2. Explain the impact of brexit on the growth of small independent business in UK
Brexit refers to as exit of Britain from European Union. This has been occurred as people in UK demanded that decision regarding working of country should be taken within country and European Union should not interfere or influence any decision. This lead to create political instability that negatively impacted economy of country. It has been identified that brexit leads to decrease in GDP of country as UK has suffer loss from European customers and suppliers. EU provides the scope for free trade within other countries of world by removing all customs requirement (Hantzsche, Kara and Young, 2019). Country is facing reduction in the number of migration from other countries as EU implemented various regulations for European to migrate to UK. Citizens of EU countries need to follow various immigration rules to stay in UK which is resulting in reducing migration in country. However, brexit has provides some positive impact for people living in the country. It has lead to creating scope for entrepreneurial growth in country. Some of the positive impact of brexit on small business in UK:
Emphasis on domestic production:
Due to brexit the relationship of UK with other European suppliers and customers has been negatively impacted. It made it expensive for country to purchase goods from other supplier which led to the paying emphasis on domestic production. This promotes entrepreneurial growth in the country as local people are more attentive toward purchasing goods from small businesses as to control their budget. For example: Green valley groceries in Islington claims that there sales have been increased form the local people by 4% after Brexit. This promotes their small business and helps in improving their financial position.
Reduction in number of migrates:
Brexit lead to reduction in number of migrates in country as there are several regulations for people of European to stay in UK. It has been identified that migrants has been reduced by 70% as compared to pre brexit period (Brexit impact on small business, 2022). This has lead to reduction in the number of competitors for small business and help in increasing scope for growth. It also helps in protecting their business from international markets and helps in maintaining stability in the industries.
Increase scope for international trade:
Prior to brexit, companies in UK was restricted form trading to Non EU countries. This includes restricting trade with US and Australia which impact the economy of country and eventually impact stability of small business in UK. After Brexit companies are free to trade with any other country which provides more scope for them to grow.
Increase in government support:
UK government has focus on improving domestic production after brexit. For attaining the goal, government in UK has formed various policies which will aim at providing financial support to small business (Musarat, Alaloul and Liew, 2021). Government has launch Innovation voucher which aim at providing initial support to the small business. This include grant of £5000 to the individual which will help in fulfilling the requirement of initial funding.
Negative impact
Reduction in number of customers:
It has been identified that number of migration in the country has been reduced due to brexit. It has impacted the country’s relation with other European suppliers and customers which lead to reduction in percentage sales of the organization. Wild swans are the clothing store in London claim that there is reduction in the sales by 7% in 2022 as compared to the sales in 2020. This indicates that profitability of small business is highly impacted by brexit which reduce motivation of small business to operate in UK.
Increase in cost of operation:
EU’s policies were aiming at promoting and developing small business in Europe. With brexit, it makes it difficult for the small business in UK to survive as earlier all raw materials and financial support was provided to the companies whenever needed. From the survey of manufacture of East midland it has been identified that brexit creates problem in importing raw material at efficient cost. UK government has made new regulation for small business which is difficult for them to adapt. Brexit has lead to problem in immigration process which is making it difficult for 44% of company in getting visas for their employees (Durmu?, 2019). This hampers small business in UK and lead to reduction in the growth of entrepreneur in country.
Reference
Books and Journals
- Breinlich, H., Leromain, E., Novy, D. and Sampson, T., 2022. The Brexit vote, inflation and UK living standards. International Economic Review, 63(1), pp.63-93.
- Dayan, M., Fahy, N., Hervey, T., McCarey, M., Jarman, H. and Greer, S., 2020. Understanding the impact of Brexit on health in the UK. Nuffield Trust, pp.2020-2012.
- Durmu?, A., 2019. High inflation risk and growth rate. International Journal of Social Science Research, 8(1), pp.20-28.
- Hantzsche, A., Kara, A. and Young, G., 2019. The economic effects of the UK government's proposed Brexit deal. The World Economy, 42(1), pp.5-20.
- Musarat, M.A., Alaloul, W.S. and Liew, M.S., 2021. Impact of inflation rate on construction projects budget: A review. Ain Shams Engineering Journal, 12(1), pp.407-414.
- Online
- Brexit impact on small business. 2022. Online Available through :< https://www.reuters.com/markets/europe/brexit-deal-nightmare-small-businesses-survey-2022-12-22/>
- Increase in prices of Next clothing. 2023. Online Available through :< https://www.reuters.com/business/retail-consumer/uk-retailer-next-raises-profit-outlook-again-2023-11-01/>
- Inflation rate in London. 2022. Online Available through :< https://www.statista.com/statistics/306648/inflation-rate-consumer-price-index-cpi-united-kingdom-uk/#:~:text=The%20UK%20inflation%20rate%20was,11.1%20percent%20in%20October%202022.>
