Impact of Inflation on Small Medium Enterprises and Tourism Sector

This research project analyzes the impact of inflation on small medium enterprises and tourism sector. It defines inflation and events leading to inflation. The aim and objectives of the research are also mentioned. The main body discusses the impact of inflation on SMEs and tourism sector, both positive and negative. The conclusion suggests strategies to reduce the negative impact of inflation.

Research Project

Table of Contents
INTRODUCTION...........................................................................................................................3
Definition from research of inflation..........................................................................................3
Events leading inflation such as global events, interest rates etc. ..............................................3
Aims and Objectives of the research...........................................................................................4
MAIN BODY...................................................................................................................................4
Impact of inflation on small medium enterprises........................................................................4
Positive and negative impacts of inflation on tourism sector.....................................................5
CONCLUSION ...............................................................................................................................6
REFERENCES................................................................................................................................8
Books and Journals:....................................................................................................................8

INTRODUCTION
Definition from research of inflation
When the prices of products and services increased over a particular period of time in an
economy, then the situation called as inflation. It can be caused due to many reasons such as
decline in supply, increase in demand or output and many more. Price factor is significant to the
customers as when the prices of goods increases they tend to decrease their consumption and
move to products which have low prices that matches their budget. Another reason of inflation is
the increased cost of manufacturing such as rise in prices of raw materials, rise in wage and
labour rate and so on (Su and et.al., 2020). It makes businesses to rise their final products prices
in order to cope up with inflationary situation.
Events leading inflation such as global events, interest rates etc.
When the inflation arise in an economy, the buying power of consumers has been
decreasing as they move towards such goods and services which fits into their budget and start
investing in necessary facilities such as healthcare or more. They also save their money for future
use. People mostly invest their money on essential goods which are necessary in nature and
cannot be avoided. Global event is one of the events in the list that leads inflation. It is found and
researched that there are various nations that increases their raw material prices or extend their
import and export charges, that makes other country also increase their prices of such goods. It
can be understood with an example that if UK based organisation import their raw materials
from Russian market and if they increase their prices then UK company have to purchase their
raw materials even at high prices (Rumler and Valderrama, 2020). Thus, it makes organisation to
rise their prices of their finished products so that profit would not be affected and to cover the
costs as well.
Whereas, interest rate is also a factor that leads to inflationary situation in an economy. It
is seen that when the interest rates is minimised then people enhance their loans from the bank
and invest more in market for commercial purpose. Therefore, the government increases the
prices of services or goods when they found that there is more circulation of money and they
need to control it.

Aims and Objectives of the research
Aim: “The aim of this research is to understand the positive and negative impact of
inflation on tourism industry while identifying strategies to reduce the negative impact.”
Objectives:
 To find out the positive and negative impacts of the inflation on the tourism sector of UK
 To evaluate strategies to decrease the negative impact of inflation on tourism sector of
UK
MAIN BODY
Impact of inflation on small medium enterprises.
Small medium enterprises or SMEs are those business enterprises which hires low
number of workers and employees in the company. Also, these companies generate less amount
of profit These type of businesses are not too popular in the marketplace that is why they are
having less number of customer base for the business. In tourism industry, there are many SMEs
who have established their business and gets severely affected when they face inflation. It is
found that the current inflation rate of UK is 9.4% due to which the fuel prices gets increased
(Butler, 2022). As per the research, approx. 1650 tourism businesses showcase they they have
seen a big fall in their revenue as they highly impacted by inflation. Also, many customers move
to other travel brands who offer great prices with same type of travelling services. In addition,
many other customers cancel their travelling plans as they can travel when prices gets decrease.
Every six of ten travellers says that they only suppose to change their location or travel
for business purpose only as this is the part of their jobs and cannot be avoided even at the time
of inflation (Law and Soon, 2020). But, if their purpose of travelling is enjoying holidays or
sporting then they may switch the destination which has reduced prices or even they could cancel
their travelling plans during inflation.

Interpretation: It has been found out from this image is that GDP has an inverse
relationship with inflation. Thus, this graphic representation showcase that when inflation arise
than GDP of UK gets increased and vice versa. SME always plays an important role in the
growth of an overall economy as they contribute to it by giving employment opportunities to the
local people but during inflation it also gets affected negatively.
Positive and negative impacts of inflation on tourism sector
Bui, (2019) views that tourism industry is one of the vast industries in all over the world.
Inflation can facilitate both kinds of impact on the tourism industry i.e. positive and negative
impact. It has been researched that there are various customers who are travelling because it is a
business for them and they make money through it. These customers are adventurers, social
media influencers, bloggers and so on. They like to travelling even they need to pay higher than
usual prices because it is the part of their job. On the other hand, there are also customers who
need to attend business meetings and for which they choose to travel with increased costs of their
aviation along with accommodation services. Hence, it can be said that inflation develop
enhanced possibilities for tourism organisations to generate more money by charging extra cost
from such travellers for who travelling is essential.

However, Salisu, Ndako and Oloko (2019) perceives that inflation cause many negative
impacts on the tourism industry. Because of the inflation, many of the tourism products and
services prices gets enhanced band due to which customers decrease their purchasing patterns
and wait for the situation when prices gets normal. This situation also makes customer to look
for such brands who have low costs on the travelling services or items. It make companies to see
fall in their customer base, revenue and output during inflation. Inflationary situation makes
organisations to boost their prices of holiday packages due to which many of the potential
customers cancel their plans and avoid consumption of expensive tourism activities to save their
money for shopping necessary goods. Thus, it showcase hat most customers buying strength falls
when prices gets increased. Travel customers avoid to take tourism facilities which display that
tourism enterprises are not making good revenue from their operational activities. Even some of
the business enterprises, including SMEs in tourism sector had to shut down their business as
they could not survive in the inflationary situation. It is also found that employment rates also
gets decreased when inflation arise in the economy. Organisations cut their jobs due to which
many employees gets removed from their business which simultaneously affect their brand
image in the market (Behera and Patra, 2022). Those employees gets termination letter who are
giving low performance and productivity to the business. Thus, from this section, it can be said
that inflation can cause severe impacts on the tourism industry.
CONCLUSION
From this project, it is concluded that inflation is the situation where prices of services or
physical goods gets increased. Inflation can be positive and negative to the companies in tourism
industry. Customers are sensitive towards price factor and thus, their shopping pattern also gets
affected during inflation. In tourism industry, customers avoid the travelling purpose if it is not
essential to them. Hays Travels is one of the big names in UK tourism sector which also gets
severely affected by inflation. They have see the decline in their profit margins as many of the
travellers are not ready to give extra amount on the travel package during inflation. While, other
companies such as Jet2holidays sees inflation in a positive way. Basically, they target those
customers who cannot neglect travelling and goes around the world at any cost. Thus, they target
customers such as influencers, bloggers etc. who travel by purchasing tickets even at high prices.
For such inflation is possibility to make money significantly.

Whereas, as inflation also provide negative impact on the businesses, it is also important
to identify strategies or solutions to overcome such negative impact on the business. It is
recommended to reduce the prices as much as possible to provide services at low cost to the
customers. It also helps that customers would not move to the competitors. Hays Travels can
minimise their cost by analysing different environmental factors such as economic or political. It
is also important to focus on employees and make them convince to work with little lower salary
so that situation can be handled.

REFERENCES
Books and Journals:
Su, C.W. and et.al., 2020. A review of resource curse burden on inflation in
Venezuela. Energy, 204, p.117925.
Rumler, F. and Valderrama, M.T., 2020. Inflation literacy and inflation expectations: Evidence
from Austrian household survey data. Economic Modelling, 87, pp.8-23.
Law, C.H. and Soon, S.V., 2020. The impact of inflation on income inequality: the role of
institutional quality. Applied Economics Letters, 27(21), pp.1735-1738.
Bui, T.N., 2019. INFLATION AND STOCK INDEX: EVIDENCE FROM VIETNAM. Journal
of Management Information & Decision Sciences, 22(4).
Salisu, A.A., Ndako, U.B. and Oloko, T.F., 2019. Assessing the inflation hedging of gold and
palladium in OECD countries. Resources Policy, 62, pp.357-377.
Behera, H.K. and Patra, M.D., 2022. Measuring trend inflation in India. Journal of Asian
Economics, 80, p.101474.
Butler S., 2022. Everything is going up’: UK hospitality sector struggles as inflation soars
[Online] available through: <https://www.theguardian.com/business/2022/jul/20/uk-
hospitality-sector-struggles-as-inflation-soars/>