Contemporary Business Environment: Impact of COVID-19 and Brexit on UK Economy

The report discusses the impact of COVID-19 and Brexit on the contemporary business environment of UK. It covers major economic responses of UK government and Bank of England. The report is relevant for students studying business and economics courses in UK universities.

Contemporary
Business Environment

Executive summary
The concept of contemporary business environment considers the fundamental and
applied aspects of environmental processes and impact of human on environment. It tales into
consideration of both internal and external factor which puts an significant impact on economy.
This factors of environment helps in identifying opportunities and threats for any business
organisation. It makes essential for the director to determine and evaluate the component along
with to manage such forces. In report the discussion is based on various economic impacts due to
Covid-19 and Brexit. Also, consider major consequence by Bank of England and UK’s
Government.

Table of Contents
Executive summary .........................................................................................................................1
INTRODUCTION...........................................................................................................................1
DISCUSSION AND ANALYSIS...................................................................................................1
Impact of COVID-19 on the UK's Economy.........................................................................1
Major Economic Responses of the UK's Government and their implications.......................2
2.3 Major responses of the Bank of England and its implication to UK economy................4
2.4 Impacts of Brexit on the UK’s economy..........................................................................6
CONCLUSION................................................................................................................................8
Recommendations ...........................................................................................................................8
References:.......................................................................................................................................9
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INTRODUCTION
Business environment involve all those factors which implies an affect on the business
operations. It is necessary for the business organisation to analyse all those factors in order to
avoid the challenges which the organisation will gonna face in future. Favourable business
environment make business operations easy and effective. Natural environment, political
environment, economic environment and cultural environment are consider as the several factors
of contemporary business environment. Changes in all these factors result in the changes in
business operations of an organisation. In order to maintain the business growth and success, the
evaluation of such factors is necessary. The economy of United Kingdom has been effected
several times such as Brexit and COVID-19 (Bagchi and et. al., 2020). This report include the
impact of COVID-19 on the economy of United Kingdom along with major economic responses
of government and Bank of England. Furthermore, it also deals with the impact of Brexit on the
economy of UK.
DISCUSSION AND ANALYSIS
Impact of COVID-19 on the UK's Economy
COVID-19 highly effect the health of general public which result in the global pandemic.
The entire world was battling with such a huge pandemic. Its impact has been also seen on the
economy and financial market of United Kingdom. Several of precautions have been also
adopted by the government of country in order to protect the general public from virus such as
social distancing. The circular flow of income is found as a model of economics which leads to
presenting the big exchange which include products & services, money and many more. This
model present the flow of money starts from manufacturers to labour in the form of wages and
then it reverse back to manufacturers as the payment which they receive from selling products.
Majorly, this model is applied for the purpose of analysing and understanding the flow of money
within the economy of a country (Bell, Gardiner and Tomlinson, 2020). The COVID-19
pandemic has presented several economic consequences on the country which include reduction
in the income of public, disruptions in the service of manufacturing industries and transportation,
increase in unemployment rate and many more. The earnings of people living in UK has been
directly affected because of premature deaths, work place absenteeism, reduction in productivity
and many more. Several of manufacturing companies stop working which result in the loss of
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jobs of people. Most of employees become jobless as they lost their jobs in pandemic. It also
reduce the requirements of industrial inputs and energy resources which cause shut down of
businesses which cause increase in poverty in nation. As a result of it, all the employers decided
to reduce the number of employees or their wages and salaries working in their business
organisation. At that stage, the businesses were not in condition to pay the full amount of salary
to their employees. Rate of unemployment was increasing constantly as the people getting
terminated by the employer. Lock down and absenteeism of workforce result in the decrease in
production of products which also leads to the decrease in profits as well. Minimization of profit
and production leads to the huge losses to the organisation and the employer shut down their
business.
The purchasing power of people get also minimised and people started investing only on the
essential requirements. Several non essential businesses also shut down because of impact of
COVID-19 as the sales of non essential businesses get decrease and the owner was not in the
situation of paying salary of employees, building rent, taxes and many more (Comunian and
England, 2020). Many employer used their personal property in order to pay their debts and rent
because of COVID-19 pandemic. The debts of government also increase because the customers
were not able to pay the interest on their loans.
Major Economic Responses of the UK's Government and their implications
Below mentioned are the several economic response of government of United Kingdom along
with their implications: Eat out to help out scheme: It is one of the best measure or response adopted by the
government of United Kingdom in against to COVID-19 pandemic. This scheme is
related to the reopening of organisation after lock down. It provide a huge support to the
hospitality sector and providing the job protection to the employees working in the same
industry. It encourage the people to eat out. This scheme has been introduced by
Chancellor on 8th July, 2020 (Eikhof, 2020). Under the scheme of Eat out to help out
scheme, government has announced a 50% discount on the food and non alcoholic drinks
at restaurants. This scheme was valid on every Monday to Wednesday from 3rd August to
21st August, 2020. This scheme was valid only on the dine in services. And such discount
is capped at a maximum of £10 per head. The major objective of this scheme was to
encourage a better return to the hospitality industry as they faced a lot during the
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COVID-19 pandemic. This scheme result in the increase in the demand of eating food
items in restaurant. As an outcome, almost 78116 outlets claimed £849 million. About
160 million individual meals were claimed during the period of this scheme and the
average claim of per meal is £5.24 (Eat Out to Help Out Scheme, 2020). Job Retention Scheme: The government of United Kingdom has develop the
Coronavirus Job Retention scheme for the purpose of helping the employers to maintain
their work force and employees even their operations are being effected due to the
COVID-19 pandemic. The major focus of this scheme was to support the employers of
nation. This scheme was announced by the government of United Kingdom on 20th
March, 2020. This scheme focus on brining improvement in the labour cost of business
organisation along with increasing the earning of employees in the situation of reduction
in business activities. The important aspect of this schemes is that it keep the employees
and employers even in the case of suspension of their employment (Fetzer, 2020). At the
initial phase of Covid-19 pandemic, the government of UK has supported the business
and workers deal with unforeseeable and abrupt decrease if not fulfil shutdown in
business functions resulting from the obligatory limitation by government to contain the
spread of disease. It provide the essential liquidity to the employers for the purpose of
holding their labour which also involve their skills, experiences and talent which also
allow them for ramping up the practices after the recovery of economic activity. They are
not required to perform the entire deep process of recruitment, selection and training for
new employees. It claimed almost 80% of the regular monthly labour cost and it present a
cap of £2,500 per worker and every month (The UK’s Job Retention Scheme, 2021). The
employers of UK also contribute towards the furlough labour costs which is being
provided under the scheme of Job Retention. Kickstart Scheme: The respective scheme has been developed for the purpose of creating
new placements for work for the people of 16 to 24 years old. Under this scheme, the
government of United Kingdom announced to provide a bonus of £1,500 for each new
vacancy. It leads to providing the appropriate jobs to the young generation people along
with providing them training in order to develop the skills. It result in the increase in
chances in getting the jobs top the people who just completed their academics. All these
employment opportunities are being provided by public, private and non profit business
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organisations. Under this scheme, it has been also listed that the new vacancy last for
minimum of next 6 months and a minimum of 25 hours a week. It has been found as
essential for employer to provide proper training to the people of age group of 16-24 in
order to improve their skills and get better opportunity in future.
 Furlough Scheme: As per this scheme, the Premier declared the delay by saying that the
employers will be anticipated to impart their 10% towards the hours their employees do
not work. It bring several changes in the rules and regulations of lock down which left
millions of employees afraid and nonplussed regarding the time that when their next pay
cheque will be provided. This scheme of government of United Kingdom state that
anyone working as a full time employee can be furloughed. Basically, it involve all those
people whoa were working on flexible basis or on zero hour basis. It has been cleared by
HMRC that the employers can recall their employees for joining who were made excess
after 23rd September. This date is the qualified date for supporting the job scheme. The
government of United Kingdom was providing complete support to the employers but the
employees were not able to see much difference in their pay scale or salaries. Under this
scheme, employees were working in the same manner and getting their salary on the
same basis and they are also paying taxes. After completing the time period of furlough ,
employees get back to work with their previous employer (The UK’s coronavirus
furlough scheme, explained by experts, 2020).
2.3 Major responses of the Bank of England and its implication to UK economy.
The role of bank England is help UK business and households for managing an economic
shock as bank and society have great role in economy growth and most of company , peoples &
services rely on them. The series of supervisory and policy measure is being introduced by Bank
of England in UK to help organisation in development. The financial stability is measured by
maintaining design of regulatory measures along with ensures the soundness & firm safety by
making sure policy holders are safe (Ajimoko, O. J., 2018) . Following are some factors of Bank
of England and their implications on UK economy is been discussed-
 Reduce interest rate- For supporting the cost of mortgages and loans for companies &
household there was reduced in interest rate of Bank of England. The banking service is
facilitated as this a UK's central bank to all the building societies and bank in UK. In the
Bank of England the accounts can be opened as well as money can be borrowed from
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them for this they charge interest. The rate of interest was reduced by 0.1% by 2020
which is almost zero for facilitating support in overall UK economy. In UK, the support
is provided for increasing employment opportunities. With the change in bank rate there
is affect on the economy and people spending patterns also change and they spend by
knowing the cost of things (Anjum, and et.al., 2019). The change in bank rate affects the
prices and inflation. To keep inflation rate by 2% it is targeted by Bank of England. The
fall in payment of interest if someone is having loan or mortgage may get cheaper.
Hence, low interest rate tens to boost in expenditures and vice-versa. Also, this makes
essential in understanding in what way people save and spend their income in order to
identifying inflation target.
 Sustenance of Government bonds- The Government bond is refereed as debt based
investing from which money is borrowed from government in return of agreed interest
rates. This funds can be utilised by government fir spending on infrastructures and
projects along with investor use for getting decided return paid at usual investments.
When their is purchase of government bond one contributes in government for the agreed
amount of time along with agreed amount (Dashper, K., 2019). In the way of fixed
interest rate it is return by government on regular basis which is known as coupon.
Therefore, government bond is defined as fixed income asset and on expiring of bond it is
back to regular investments. The demand and supply affects the government bonds, when
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demand is get influenced by having bond which is attractive investment which can be in
the form of gifts or treasuries. The government requires more money due to pandemic
which is highly needed for financing its interventions for benefiting employees,
incommoding facilitating loans to companies. Due to slowdown in economy, this requires
to lend more which decreases tax revenues and gain of government expenditures. The
Bank of England has become a larger debt holder Since 2009. It holds 23% of value by
2019. It also purchasing gold as quantitative change programmes which intentional to
offer gain to the economy following 2007-09 financial crises. It also enlarging this
formulation in result to the Covid-19 by approximately £200 billion.
2.4 Impacts of Brexit on the UK’s economy.
The British exit from the European union is termed as Brexit which was an complicated
procedure to leave European union. The UK is being already impacted by Brexit which caused
down the slower economy and several of organisation are shifting their headquarters to EU.
 Immediate impact- In 2017 by research, the result of referendum is upraised inflation
rate by 1.7% in UK, leading to annual value of £404 for the average households of
Britain. It is researched that Brexit economic costs of vote were 2% or 2.5% of Gross
Domestic Profit. The Brexit referendum outcome has fall down the national British
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income by 0.6% to 1.3% in December 2017 according to the study in financial times. It
has been researched that there are several studies that Brexit evoke uncertainties close to
future trade policy of UK declined British global trade (Delgado, and Calegari, 2020).
The British companies has started in 2019 their relocation processes to EU after
referendum. On the other side, EWU companies attending new investment in UK. The
bank of England after Brexit referendum and other banks forecasting short-term
macroeconomics which were pessimistic. The customer confidence in market and there
was creation of uncertainness which was predicted. By the end of transition period, the
agreement was based on trade negotiation among UK and EU that results in positive
which helps in solving several barriers that is associated with trade.
 Future impact- In the medium and long term there is near-unanimous or overwhelming
agreement between scholars which is going away from the EU having negative impact on
economy of British in 2016. Fr9om several economist the agreement was surveyed the
weakened the real per capita level of income in UK. The survey of 2017 and 2019 of
present academic investigation measured the credible estimation which ranges between
GDP losses of 1.2 to 4.5% for UK and cost of between 1–10% income per capita of UK.
The disagreement is predict which depends whether there is Hard or Soft Brexit in UK
(Djukic, and Ilic, 2021). In January 2018, Brexit investigated by government of UK
describing that the economic improvement of UK would be inferior by 2-8% for minimal
15 years leading Brexit. The research has found that European Union on the basis of
Leave Scenario, the positive effect is delivered on trade by membership, resulting UK
trade that would be bad if it will be no longer part of EU. Under a hard Brexit, UK
returns to WTO rules, 1/4 would be look high trade barriers, 1/3 of UK’s export would be
tariff free to EU and other trade risk tariffs would be 1- 10%. This is also evaluated that
UK regions are much exposed to Brexit than other nation region. In 2017, economist find
which owed the economic impact of Brexit induced cut back in migration known that
there would be possible minimum affects on wage in the low-skill service sector with
significant negative effect on Gross Domestic Profit per capita in UK (Jabnoun, N.,
2019).
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CONCLUSION
From the above it is been concluded that business environment refers to collection of
several micro and macro factors by involving customer needs and preferences, employees,
management, supply& demand etc. The performance of business and sustainability is
influenced in the competitive market. In the report the discussion is on economic impact iof
Covid-19 in UK economy which rasied several factors like collapsing of business,
unemployment, increasing debts and many more. S3everal government economic responses of
UK is discussed which involves several schemes like job retention scheme, eat out to help out
scheme, kickstart scheme and furlough scheme and many more. Further, the major responses of
Bank of England is included in which implication of reduced interest rate and government bond
is described along with impact of Brexit on economy of UK resulting into trade barriers and
many more.
Recommendations
From above analysis, this can be suggested that the expenditure by government can be
increased or decreased on the infrastructure or new projects in order to increase the opportunity
of employment and to enhance growth of economy. The way in which organization operates
their business can be change by UK government wh9ich can influence economy either by
changing own taxes or spending patterns or through passing laws and regulations (Ko, and Kim,
2019). The example can be taken as such the extra expenditure by government results in up-
surging demand in economy which can lead to high employment & produc6tivituy. There can be
development of strategy or modification in existing by the government for people who are not
comfortable to take work from home or remote working. This encourages to return to work by
facilitating social distancing in organisation so as to keep health and safety. The government can
too increase their budget and modify plan of action for addressing Covid-19 pandemic situation.
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References:
Books and Journals
Bagchi and et. al., 2020. Impact of COVID-19 on global economy. In Coronavirus Outbreak and
the Great Lockdown (pp. 15-26). Springer, Singapore.
Bell, T., Gardiner, L. and Tomlinson, D., 2020. Getting britain working (safely) again: The next
phase of the coronavirus job retention scheme. London: Resolution Foundation.
Comunian, R. and England, L., 2020. Creative and cultural work without filters: Covid-19 and
exposed precarity in the creative economy. Cultural Trends, 29(2), pp.112-128.
Eikhof, D.R., 2020. COVID-19, inclusion and workforce diversity in the cultural economy: what
now, what next?. Cultural Trends, 29(3), pp.234-250.
Fetzer, T., 2020. Subsidising the spread of COVID-19: Evidence from the UK’s Eat-Out-to-
Help-Out Scheme. Economic Journal (London, England).
Hijzen, A. and Salvatori, A., 2022. The impact of the COVID-19 crisis across different socio-
economic groups and the role of job retention schemes-The case of Switzerland.
Siu-Cheung, M.O.K. and Saigal, V.M., 2020. Using Solar Electric Cooking to Kickstart
Universal Energy Access in the Developing World. In 2020 IEEE Global Humanitarian
Technology Conference (GHTC) (pp. 1-4). IEEE.Letters, 9(12), pp.2143-2156.
Ajimoko, O. J., 2018. Considerations for the Adoption of Cloud-based Big Data Analytics in
Small Business Enterprises. Electronic Journal of Information Systems
Evaluation, 21(2), pp.pp63-79.
Anjum, and et.al., 2019. Antecedents of entrepreneurial intentions: A study of business students
from universities of Pakistan. International Journal of Business and Psychology, 1(2),
pp.72-88.
Dashper, K., 2019. Challenging the gendered rhetoric of success? The limitations of women‐only
mentoring for tackling gender inequality in the workplace. Gender, Work &
Organization, 26(4), pp.541-557.
Delgado, and Calegari, 2020, October. Towards a unified vision of business process and
organizational data. In 2020 XLVI Latin American Computing Conference (CLEI) (pp.
108-117). IEEE.
Djukic, and Ilic, 2021. Importance of Green Investment and Entrepreneurship for Economic
Development. In Contemporary Entrepreneurship Issues in International Business (pp.
195-220).
Jabnoun, N., 2019. A proposed model for sustainable business excellence. Management
Decision.
Ko, and Kim, 2019. The effects of maturity of project portfolio management and business
alignment on PMO efficiency. Sustainability, 11(1), p.238.
Online
Eat Out to Help Out Scheme, 2020. [Online] Available Through:
<https://commonslibrary.parliament.uk/research-briefings/cbp-8978/>
The UK’s Job Retention Scheme, 2021. [Online] Available Through:
<https://www.hoganlovells.com/en/publications/the-uks-job-retention-scheme>
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The UK’s coronavirus furlough scheme, explained by experts, 2020. [Online] Available
Through: <https://www.wired.co.uk/article/uk-furlough-scheme-job-protection>
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