Impact of Inflation on SMEs and Tourism Industry in UK

This research project explores the impact of inflation on SMEs and tourism industry in UK. It identifies both favourable and unfavourable impacts of inflation on the tourism industry of UK, along with acknowledging the strategies to overcome negative impacts of inflation.

Foundation Year
Research Project

Contents
INTRODUCTION...........................................................................................................................1
About Inflation.............................................................................................................................1
events that can cause inflation.....................................................................................................1
Aims and Objectives of research ................................................................................................1
MAIN BODY ..................................................................................................................................2
Impact of inflation on SMEs........................................................................................................2
Qualitative Research .......................................................................................................................3
Positive and Negative impacts of inflation on tourism industry..................................................3
CONCLUSION ...............................................................................................................................4
REFERENCES................................................................................................................................6

INTRODUCTION
About Inflation
The decline in the purchasing power or rise in prices over the time. In Inflation the prices of
product and services increases for a particular period of time within an economy of a company.
The inflation can be caused by many reasons like when the customers are price sensitive, when
the demand of product is more than the supply of product than the prices of that product
increased to control demand, sometimes price rises due to increase in the taxation, inflation can
also be caused due to increase in manufacturing like cost of raw materials, wages of labour and
many more reasons because the company increases the total cost product with there profit
margin(Athari and et.al, 2021).
events that can cause inflation
When the inflation occurs customers decline there purchasing power because they start investing
there money in healthcare facilities and start saving money for future expenses and stop buying
normal goods. At the time of inflation customers only focus on buying the good which are
essential and used in daily needs there are many events that can cause inflation and global events
is one of them. When another countries increase the import or export charges or increases the
prices of raw material it will definitely effect other countries also. For example: Russia is
exporting the raw materials to UK registered company and because of any reason Russia increase
s the raw materials prices and because of that firms need to buy them at high rates and because
of this the company have to increase there overall cost of the product(Irgashevich, Odilovich and
Mamadaliyevich, 2022).
But on the different side, inflation can also be lead by interest rate. If the interest rate is
low then the customers will start borrowing from banks to invest it in market. When there is
more money circulation in the market and to control this money circulation the government
increases the cost of products.
Aims and Objectives of research
Aim: To identify both favourable and unfavourable impacts of inflation on the tourism industry
of UK, along with acknowledging the strategies to overcome negative impacts of inflation
the purpose of this identify the positive and negative impacts caused by the inflation on tourism
industry and implement the solution to overcome the negative impacts.
1

Objectives:
 The identify the negative and positive impacts of inflation of tourism industry in UK.
 To find the solution to overcome the negative impacts of tourism industry in UK.
MAIN BODY
Quantitative Research
Impact of inflation on SMEs
The organisations have limited revenue and have small number of worker are known as Small
Medium Enterprises. These companies have less amount of customer base and because of this
they are not too famous among the local consumers. There has huge impact of inflation on SMEs
of tourism sector. There are many travel agents and companies who are working in tourism
industry at small level and when the inflation impact the industry there are the one who are badly
impacted. The economy of UK is not so good and the country is facing high inflation rate which
is up to 9.4% increase in fuel prices. According to a study there are almost 1650 travelling
business who are telling that they face huge loss because of fall in profit due to inflation(Icoz and
Icoz, 2019).
Most of the customers are waiting for prices to get lower on holiday package and most of
the people had cancelled their travelling plans and the customers are switching to other
companies who are providing low prices packages. Every 4 of 7 travellers are travelling due to
business reasons and many travellers are changing their travelling destination from adventurous
places to lower prices destinations or sometime cancelling travelling plans during
inflation(Rashid and Khalid, 2020).
2

Interpretation - From the above figure, it has been examined that the inflation rate of UK has
rise up to 11% as compared to past years. The inflation in UK is rising very fast and this sudden
increase in the price has decreased the profit margin of SME's( Harari, 2022).
Qualitative Research
Positive and Negative impacts of inflation on tourism industry
According to the view point of tourism industry is among largest growing business sectors
universe. Inflation has both its positive and negative impacts in the sector of tourism. There are
many customers in this business sector for whom travelling is a business and they earn by
travelling and there are many examples of this and few of them are: adventures, influencers,
bloggers and many others. They are okay in travelling at any cost and can pay extra for travelling
as this is their job. Therefore, at the time of inflation people who have to travel for business
purpose and few of the travellers choose to travel and pay higher prices for accommodation and
flights. For the tourism industry it can be the perfect time to earn more by taking higher rates
from the customers who travel constantly due to business purpose(Zhao, 2022).
According to (Siklos, 2020) inflation have many negative impacts on the tourism sector.
Because of inflation the cost of products and the services rises and in today's world customers
3
Economic update: Growth slows as inflation rises,2022

are sensitive for prices of the products and it means if customers see hike in the prices of
products and services they immediately switch their demand. And this same happens in the
tourism sector if the inflation rises and the value of holiday packages also rises. Man y customers
changed or cancelled their plan of travel and they used to avoid the the expensive tourism
packages offered by tourism companies to save money for necessary good(Hu, Yang and Zheng,
2021). Therefore, this show that when the inflation rises the purchasing power of the consumer
decreases. Tourism business are no earning goof profits as the customers are avoiding tourism
facilities in inflation. Due to inflation many SME companies have shut down there and the exit
the tourism market and inflation also caused in increase of unemployment rate. To survive
during inflation and cut down the cost the companies of tourism sector terminates few of their
employees from their company. Companies terminated employees who which are mostly low
performers in the organisation and this affects the brand image of business companies who are in
this sector.
CONCLUSION
It has been concluded about the above information that inflation is used when the value of the
product and services in an company faces increase in there cost and it is measured in the form of
percentage form. Majority of consumers in the market are sensitive for prices of products and
inflation can switch them from one company to another if identified that they need to pay extra
cost for the products of their needs and desires. Tourism is among the largest industry at world
level and on this industry inflation has both positive and negative impacts. It can lead to decline
in the revenue of company as many of the consumers are not willing to pay addition cost for
products. One of the most popular tourism company Jet2 holidays also seen negative impacts of
inflation on their organisation. But it not only have negative impacts Jet2 Holidays also seen
positive impacts of inflation. Jet2 Holidays only targeted those customers for whom travelling is
important as their job is related to travelling. Therefore the company target the bloggers, social
media influencer and adventurous travellers because they are ready to pay higher prices for
booking accommodation and buying flight tickets. So for those inflation is an opportunity to earn
more profits from customers.
Inflation can effect the growth of the companies who are in tourism sector and to
overcome the risks companies faces at the time of inflation they can various strategies and
recommendation and one of the best strategy to overcome from inflation is by cutting down the
4

prices of holiday packages as much as possible and offer the prices lower than competitors to
customers. The companies like Jet2 Holidays tried to cut down their value by examining their
business environment and analysed the activities from which some productive and some are non-
productive activities. They can extenuate their all non-productive activities to reduce the costs of
their services and on the other hand some of the companies from the tourism sector also adopted
dome strategy and asked and tried to influence their employees in lower wages than non-inflation
period. The companies have gain the trust of their employees by promising their workers to pay
all the part of their salaries that they will not get during inflation to their employees after when
the situations come under control. Companies can offer the travellers who travel on the daily
basis discount and offers at the time of inflation so that they remain connected top there company
because during inflation there are only few people travels and if the company offer them
discount and offers they will choose there company over their competitors and it will help them
to reduce the risk at the time of inflation.
5

REFERENCES
Books and Journals
Athari, S.A. and et.al, 2021. The (Un) sticky role of exchange and inflation rate in tourism
development: insight from the low and high political risk destinations. Current Issues in
Tourism. 24(12). pp.1670-1685.
Irgashevich, S.T., Odilovich, O.A. and Mamadaliyevich, G.E., 2022. INTERNET
TECHNOLOGIES IN THE TOURISM INDUSTRY. Web of Scientist: International Scientific
Research Journal. 3(9). pp.57-64.
Icoz, O. and Icoz, O., 2019. Economic impacts of tourism. In The Routledge Handbook of
Tourism Impacts (pp. 95-108). Routledge.
Rashid, A. and Khalid, S., 2020. Exploring the Impacts of Inflation, Interest Rates, and their
Uncertainty on Deposits and Advances of Conventional and Islamic Banks of Pakistan. Journal
of Economic Cooperation & Development. 41(3). pp.117-150.
Zhao, H., 2022. On the impacts of trend inflation in an open economy. Journal of International
Economics, 138, p.103648.
Hu, R., Yang, Y. and Zheng, Z., 2021. Inflation, endogenous quality increment, and economic
growth. Mathematical Social Sciences, 114, pp.72-86.
Siklos, P.L., 2020. Inflation dynamics: Expectations, structural breaks and global factors.
Online:
Daniel Harari, 2022. Economic update: Growth slows as inflation rises. [Online] available
through:<https://commonslibrary.parliament.uk/economic-update-growth-slows-as-inflation-
rises/>
6