Evaluating the Contemporary Business Environment | Desklib

This report evaluates the impact of lockdown and ongoing war in Ukraine on UK's economy. It explains the circular flow of income and how it has been affected by lockdown. It also highlights the negative impacts of war in Ukraine on UK's economy and provides recommendations to the government and central bank of UK to remedy them. The report is relevant for students studying business and economics courses in colleges and universities.

Evaluating the
contemporary business
environment

Contents
INTRODUCTION...........................................................................................................................1
Explaining the impact of lockdown on UK's economy using circular flow of income...............1
Impact of ongoing war in Ukraine on UK's economy, considering both long term and short
term..............................................................................................................................................2
Major recommendations to the government of the UK to remedy the negative impacts of war
in Ukraine.....................................................................................................................................3
Recommendations which can be provided to the central bank of UK to remedy the negative
effects of war in Ukraine on the economy of the country............................................................6
Recommendations to the Government on the challenges of implementing economic proposals7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Business environment includes all those factor and forces which affect the ability of a
firm to build and maintain successful relationship with their customers. It is complex and
dynamic in nature, keeps on changing time to time which makes it hard to predict. It includes all
the external factors of an industry which affect their activities and operations. The survival of
any business depend on its inherent capabilities and ability to adapt the changing environment.
The enterprises which know their environment and are ready to adapt change will be successful.
The economic activities of a country include manufacturing, distribution and use of goods. The
economic condition has big impact on business enterprises. The prices, investments decision and
number of workers a business employ is affected by the level of consumer spending. Economic
factors affect many operations of business like demand and supply of goods, marginal and total
utility, economic growth and development.
The report covers impact of lockdown on the UK’s economy and impacts of the ongoing
war in Ukraine on the UK’s economy. It further highlights economic recommendations to the
government and Central Bank of UK to remedy any negative effects of the war in Ukraine on
economy of UK.
MAIN BODY
Explaining the impact of lockdown on UK's economy using circular flow of income
The circular flow of income is a model which involves major exchanges between
economic agents that are represented as flow of money, goods and services etc. The circular flow
of income demonstrates how money moves through society (Panzone, Larcom and She, 2021).
The money flows from producers to workers in form of wages and flow back to organisation
through payment of products or services. Circular flow of income establishes a link between
producer and consumer, helps in studying the problem of disequilibrium and restoration of
equilibrium. The impose of lockdown has adversely affected travel, finance markets,
employment and many other industries. Due to lockdown UK faced major issues regarding the
supply chain management flow. The following are the impact of lockdown on UK's economy:
Components of output: Output refers to quantity of goods or services which are
produced by the firm, industry or country within a specified time period for consumption or for
further production. The components of output for an economy includes consumption, investment,
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government expenditure, gross export and imports. Different sectors of economy were badly
affected by the lockdown in country. The output was lowering by 25% in February 2020, 7%
lower in November 2020, it further lowered by 8% in January 2021.
Decline in GDP: Gross domestic product represents the total aggregate output of an
economy. Gross domestic product measures the monetary value of final goods and services
which are bought by the final user (Nudurupati, Garengo and Bititci, 2021). It includes all output
which is being generated in the boundary of county. GDP is composed of all the goods and
services which are produced for sale in the economy, also some non-market productions such as
defence or education services provided by the government. UK's gross domestic product
declined by 9.7% in 2020, during the first lockdown the the GDP was 25% lower in April 2020
(COVID-19 response: living with COVID-19, 2022). The lockdown led to fall in economic
activities in the country. The fall in GDP results in shrinking of economy which effects the
business and workers in a negative way. The fall in GDP is said to be the recession period which
lead to pay freezes and loss of jobs.
Rise in Inflation rate: Inflation is typically a broad measure which refers to increase in
prices over a period of time such as rise in cost of living for a country. Inflation helps the
borrowers' service debt by allowing them to make future payments through inflated currency.
The Inflation rate has risen over 2021, this was due to disruption in global supply chains and rise
in energy prices. The rise in Inflation rate will squeeze the household budgets (Nundy and Et.
Al., 2021). The unevenly rise in price can lead to reducing the purchasing power of some
customers. Inflation rate allows lenders to charge interest which likely to devalue repayments.
The unemployment change remained low surprisingly, coronavirus Job retention scheme
and self-employment Income Support Scheme have driven low unemployment. UK has delivered
more than one monetary and guidelines that impacted the financial system throughout the
pandemic. The variations of coronavirus have initiated the UK government to introduce
regulations to restrict the transmission of virus. The financial effect of those measure is desired
to be taken into consideration.
Impact of ongoing war in Ukraine on UK's economy, considering both long term and short term
UK's economy is forecast to slow down next year as it suffers more than any other major
country by the effect of Russia's invasion of Ukraine. The Ukraine war started in February which
created a drastic impact on economy of the whole world. Along with Russia and Ukraine the
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whole world is suffering from present prevailing conditions in the country. Trade practices and
payments system has gone under disturbance due to the war. The impact of ongoing war in
Ukraine on UK's economy are explained below:
Inflation: Inflation rate is the major factor which is being affected by the war between
Russia and Ukraine. The government must analyse the role of government to focus on analysing
the inflation rate. The inflation rates are rising due to war as there is shortage of supply of
commodities and essential products (Munir, Luo and Dixon, 2021). The most likely economic
impact includes higher energy prices such as petrol and energy bills. As Russia and Ukraine are
important producer of agricultural products, the food prices also increased. The purchasing
power of consumers will be decreased due to increasing prices of commodities.
Unemployment: Unemployment is a key feature which leaves a major impact on the
performance of any company. In order to develop effective approach, unemployment is the
major concern for the government of UK. It is essential for government to establish new
industries and offer job in government sector to reduce unemployment in the country. People
will spend less money on procurement of goods and services due to unemployment which will
affect the economy as well. Less purchase can leave the economy lacking in selling of products
and services.
Slow economic growth: The Ukraine war is also putting major impact on the economic
growth of the country. The conflict is driving up the prices for essential goods, it has also cut
down the global forecast and downgraded its outlook for UK. The slow economic growth is
resulting in creating critical consequences in the country. The slow economic growth is creating
major impact on economic policies which are framed by the government of the country. There
will be slower increase in living standard of people due to slow economic growth. The slow
economic growth will result in less tax revenue than expected, government borrowings will be
increased, possibility of unemployment, inflation rate will be decreased.
Major recommendations to the government of the UK to remedy the negative impacts of war in
Ukraine.
The government of a particular economy is responsible for the economic conditions that
prevail in the country. The economy of the United Kingdom has been impacted by different
crises arising due to various consequences across the globe. The government has a very crucial
role in the economic aspects. They can develop and frame the measures that help them to create
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stability and balance in economic development (Kazakos, Taylor and Luo, 2021). The
government also has to analyse important conditions to influence economical ability. In 2022,
the government of the UK is taking several actions and decisions to provide the best
developmental opportunities to influence its economic growth. They are also making various
policies and rules for businesses working in their economy. All organizations have to follow the
policies decided by the government to obtain supportive growth in their specific industries. The
competitive level is also decreasing which is influenced by the government to maintain
competition among different businesses. The war between Russia and Ukraine started on the 24th
of February that has impacted the economies of the whole world. The response of the
government is increasing the chances for economic recovery in the United Kingdom. They have
to follow several recommendations to evaluate the strength of the economy or to identify
different opportunities for enhancing economic growth. Ukraine war has impacted interest rates
that are charged to borrowers by banks and creditors of the UK economy. Their government is
developing policies in their political framework to avoid the consequences of war. Businesses in
the UK also have indirect impacts of war and seek assistance from the government to confront
any kind of uncertainty. The war in Ukraine has to be stopped with immediate effect to prevent
negative effects on the economy of the whole world. Some recommendations can help the
government of the United Kingdom to avoid the consequences of the war between Russia and
Ukraine, which are as mentioned below: An increase in public expenditure: It is a very essential element in enhancing the
economic growth of any country. Public expenditure is described as expenses made by
the government of a specific country in the context to create the flow of investment in the
economy. It also provides benefits to the UK for avoiding consequences that arise due to
war between Ukraine and Russia. By increase in public spending government of the UK
can influence the upliftment of their economy. The negative effects on business can be
recovered through this remedy available to the government (Malyarenko and Wolff,
2019). It requires funds to be invested for the welfare of the economy like investing in
different sectors, expenditure on social welfare, and expenses to treat negative effects.
Government has to frame and implement different financial policies that help in
increasing public expenditure. It also includes infrastructure development and the growth
of various industrial factors that contributes to economic recovery. So, we can say that
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increase in public expenditure can help the UK to diminish the negative impacts of the
war in Ukraine.
 Establishing Multilateral Credit Rating Agency: A credit rating agency is an
organization to authorize credit ratings that help to tell about the capability of debtors to
pay back their debt taken from various sources. Government can influence the money
supply in the country by increasing the number of loans given to people in the market.
They can establish multilateral credit rating agencies to gain faster-advanced information
regarding the credit ratings of people. It also helps to assess the creditworthiness of
different bodies that includes individuals, business organizations, and other countries. It
can also estimate the government's credit ratings. The war has created huge damages all
over the world and recovery for concern damages requires monetary or non-monetary
policies. Establishing a multilateral credit rating agency is one of the policies framed by
the government. A war between Ukraine and Russia impacts the money supply of the UK
economy and it can also be treated through this recommended remedy.
 Introducing small business support schemes: The war between Ukraine and Russia
impacted the economy and industries of the United Kingdom. All business whether it is
small or big becomes affected by the consequences of war. Small business has a very
sensitive organizational structure so the government of the country has to support them
with the help of their strategies and policies. Business is the key element to economic
growth, as it contributes to the Gross domestic product and foreign investments in the
economy. The UK government needs to introduce some schemes that support small
businesses in the economy. Due to these schemes, small businesses feel easy to recover
from the impact that occurs through the consequences of war. Small business needs help
regarding the source of investment, rate of interest, and many others from the
government's side. Government can also help small business by influencing business
development plans in the UK's economy. So, from the above context, it is accurate to say
that by implementing a small business support scheme the government of the UK can
minimize the impacts of war in Ukraine.
 Suspension of import duties on raw materials: The United Kingdom has a well-
developed economy in the present scenario but the war in Ukraine is affecting the world's
economic condition negatively. The UK is giving aggressive competition to other
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countries in the context of businesses. All the organization needs raw materials to
manufacture the products that contribute to the country's GDP. Abolishing import duties
on raw materials can be considered a good step for the government of the UK to provide
cost benefits to many businesses. These businesses can produce more through this
strategy of government and exports of UK gets increase. Due to the increase in exports,
the economy of the UK may be boosted and get recovered. War in Ukraine leads many
impacts on several economies which increases the expenditure of business organizations.
Government is the major resource for every economic growth and in this context, only
government can help businesses to manufacture at low cost by removing import duties on
raw materials (Alber, 2017). So, from the above analysis, it can be appropriate to say that
suspension and abolition of import duties on raw materials can help businesses to achieve
their goals successfully and to support the economic growth in the country.
Recommendations which can be provided to the central bank of UK to remedy the negative
effects of war in Ukraine on the economy of the country
The central Bank of England also known as Bank of England which is considered as the
most prestigious and included in the eighth oldest bank in the world (Bank of England, 2022). It
was established in the year 1964 to act as the government bank to serve the people of United
Kingdom. It was privately owned by stockholders from its foundation later it was nationalised in
1946 by the Attlee ministry. The governor of the bank is Andrew Bailey who is totally dedicated
towards uplifting the economy. The central bank is having pressure due to current economic
conditions which is creating overload on employees of the organisation. The economy of UK is
also set to achieve its target goals in the set period of time in order to get effectiveness in the
operations. The government plays vital role in providing support to Central Bank to develop
focused policies (Furuoka, 2017). In order to evaluate best results, plan implementation is most
essential. As a business consultant, the major recommendations which can be given to Central
Bank in order to provide great development are mentioned below: Inflation based policies: The inflation rates have risen due to war between Ukraine and
Russia which has increased the prices for essential commodities. The bank should
develop the policies related to inflation rates in the country in order to control the
problem of price hike. It is necessary for Bank to come up with key policies and plan in
order to control the inflation. The policies related to inflation are framed by the
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professional members and directors of the bank to control the current situation. People of
the country also plays important role in supporting the development policies which are
suitable for achieving effective planning and well planned objectives. Increase in Interest rates: Interest rates are referred to as the terms at which money or
goods can be traded off, it is also used as an instrument in the economic policy. Interest
rates are considered as the backbone of any economy, it helps in development of the
country. It is the responsibility of the Central Bank to set the interest rate in order to
achieve monetary policy objective, price stability and stable inflation. Interest rates are
increased by Central bank to focus on the circulation flow of money in the economy.
Interest rates should be minimized, but due to economic welfare burden and other
perspectives it becomes essential for banks to develop focused programmes and policies.
The interest rates must be assessed to control the key considerations relating to the
economy. Increase in Interest rate will put the burden on citizens and will diminish the
marginal flow of money. The general public should also obey the interest rates which are
formulated by the economists and bank.
 Increase in Service charge to Bank: Service charges are typically a fee which is
associated with the services provided by the Banks (Tacchella, Mazzilli and Pietronero,
2018). The service charge is usually fixed at a flat rate by the banking organisation. The
interest rates are rising at faster pace due to changing patterns of the economy. The
service charges charged by the Banks are creating a major impact on the whole economy
of the country. If the interest rates will hike it will create economic fluctuations and
create major effect on the system of UK.
Recommendations to the Government on the challenges of implementing economic proposals
Government should follow recommendations in order to develop effectiveness in the
operations. There are some recommendations which can be used by the government of UK to
develop best approach to manage the whole economy. Major recommendations are given below: Liberal economic policies: Liberal economic policies are helpful for government to
frame relaxing rules and regulations. Relaxing rules will help the economy to gain
smooth growth which is a major need of the economy (Syriopoulos, 2020). Liberal
economic policies are need of an economy to gain competitive advantage over others.
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 Creating employment: Creating employment is the main need of an economy, it is
important for government to provide better employment opportunities to the people.
Creating employment will increase the living standard of people. It will enable the people
to earn more and spend more on their living. It will increase the purchasing power of
people which will result in increasing the sale of commodities in the economy. It also
assists the companies to move forward in the economy and boost themselves in the
dynamic environment.
 Focus on short term plans: The government of United Kingdom must develop some
short term plan which are essential for the economic growth of the country. The short
term plans are developed for a specific time period and then implemented to achieve the
set targets. The short term plan which are developed for a specific time period will help
the economy to boost itself.
CONCLUSION
From the above information, it is ascertained that framing well focused plans and policies
is important for an economy to develop key approaches. It is also important for the business
organisations to follow the rules and regulations followed by the government. It is observed that
lockdown had a bad impact on the economy of UK. The GDP of the country was decreased,
inflation rate was increased which created great impact on growth of the economy. It also
includes the impact of war between Ukraine and Russia. The war has created slow economic
growth, high inflation rate and unemployment in the country. In order to get effective growth in
the country it is essential for government to follow the given recommendations.
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REFERENCES
Books and Journals:
Alber, J., 2017. Government responses to the challenge of unemployment: The development of
unemployment insurance in Western Europe. In The development of welfare states in
Europe and America (pp. 151-184). Routledge.
Furuoka, F., 2017. A new approach to testing unemployment hysteresis. Empirical economics.
53(3). pp.1253-1280.
Kazakos, V., Taylor, J. and Luo, Z., 2021. Impact of COVID-19 lockdown on NO2 and PM2. 5
exposure inequalities in London, UK. Environmental research. 198. p.111236.
Malyarenko, T. and Wolff, S., 2019. The dynamics of emerging de-Facto states: eastern Ukraine
in the post-Soviet space. Routledge.
Munir, S., Luo, Z. and Dixon, T., 2021. Comparing different approaches for assessing the impact
of COVID-19 lockdown on urban air quality in Reading, UK. Atmospheric
Research. 261. p.105730.
Nudurupati, S. S., Garengo, P. and Bititci, U. S., 2021. Impact of the changing business
environment on performance measurement and management practices. International
Journal of Production Economics. 232. p.107942.
Nundy, S. and Et. Al., 2021. Impact of COVID-19 pandemic on socio-economic, energy-
environment and transport sector globally and sustainable development goal
(SDG). Journal of Cleaner Production. 312. p.127705.
Panzone, L. A., Larcom, S. and She, P. W., 2021. Estimating the impact of the first COVID-19
lockdown on UK food retailers and the restaurant sector. Global Food Security. 28.
p.100495.
Syriopoulos, K., 2020. The impact of COVID-19 on entrepreneurship and SMEs. Journal of the
International Academy for Case Studies. 26(2). pp.1-2.
Tacchella, A., Mazzilli, D. and Pietronero, L., 2018. A dynamical systems approach to gross
domestic product forecasting. Nature Physics. 14(8). pp.861-865.
Online:
Bank of England. 2022. [Online] Available through <https://www.bankofengland.co.uk/>
COVID-19 response: living with COVID-19. 2022. [Online] Available
through<https://www.gov.uk/government/publications/covid-19-response-living-with-
covid-19/covid-19-response-living-with-covid-19#:~:text=Impacts%20on%20the
%20economy&text=Compared%20to%20pre%2Dpandemic%20levels,third
%20lockdown%20(January%202021).>
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