Impact of Interest Rates Policy on Inflation in Global Business Environment

Global Business
Environment

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Inflation.......................................................................................................................................3
Impact of Interest rates policy on Inflation.................................................................................3
Major steps to be considered by Government of UK..................................................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6
Books and Journals.....................................................................................................................6

INTRODUCTION
Business environment refers to the factors and forces that affects the companies
performance to maintain successful operations or to build strong customer relationships
(Cherunilam, 2020). Business environment is combination of all conditions such as economic,
political or social aspects in which company operates. Global business environment refers to the
challenges and barriers that company has to face while operating their business at international
market (Hamilton and Webster, 2018). Global environment has broad world wide factors which
are beyond the control of any community or business enterprise. Political factors has huge
impact upon the functional areas of businesses and its profitability ratio. This report is based on
the inflation factor of political environment and how government of UK respond to overcome the
issues related with economy.
MAIN BODY
Inflation
Inflation refers to the increase in the price of products and services in economy. It reflects
the situation in which price increases and customers buys fewer products and represents the
condition of reduction in purchasing power of money (Juraev, 2020). Inflation is the increase in
price over a specific period of time. Inflation term occurs due to inequality between demand and
supply of money, changes in manufacturing cost and distribution prices or may be increase in the
tax of products.
Impact of Interest rates policy on Inflation
Interest rates are the amount that is charged against the principal amount by lender to
borrower. High interest rate reflects higher borrowing costs and consumers will eventually starts
spending less (Qi, 2020). After that, goods and services demands will reduce and lead inflation to
fall. When interest rates imposed by government are low then consumers plans to take loan due
to which flow of money in market increases with also rise in supply. If government imposes high
interest policies and higher prices then customers are no more interested in taking loans any
more. These behaviours of customers and their purchasing power are result of high interest rates.
Government should make balance between interest rates and policies to reduce the chances of
inflation (Sieroń, 2019). Government of United Kingdom should take necessary measurements to
keep interest rates and inflation in control.