Impact of Fiscal and Monetary Policy on Business Organisation in UK

This presentation analyzes the impact of fiscal and monetary policy on business organizations in the UK. It discusses the role of monetary policy in controlling cash flow and the effects of interest rate changes. It also examines the role of quantitative easing in stabilizing the economy. Additionally, it explores the elements of fiscal policy and how it affects business operations. The presentation concludes with a discussion on the global and regional factors shaping business activities.

A
PRESENTATION MONETARY
AND FISCAL POLICY

INTRODUCTION
• Business environment refers to the such factors which reflect the internal and external working of the organisation. It also determines
various major benefits which is to be undertaken in respect of fulfilling the needs and demands of the customer and also helping the
organisation to manage the overall productivity of the economy. In respect of environment the major business occurs from the
management of business through suppliers, buyer or by conducting any social activity.
• In such manner, by adapting the advanced technology and also carrying any social activity enhances the business for longer time
period. Present report is based upon the analysing the impact of fiscal policy and monetary policy in respect of carrying any activity
in business organisation in UK.
• It also carrier’s various aspects which is relating to forming any development in global and regional aspects which shape the business
activities in better scale. The report also carries various factors which identifies the needs and demand of the fiscal policy in respect
of attaining any transaction or expanding any business activities.

A) IMPACT OF FISCAL AND MONETARY POLICY IN CONTEXT OF
BUSINESS ORGANISATION IN UK
• Monetary policy:
• Monetary policy is the instrument that is used by the nation central bank to control cash flow in the nation. In
case of economic fluctuation many times cash flow increase and decrease in the economy. Both conditions are dangerous
for the nation. If money supply increase in the market then in that case liquidity increase which means that people have
more money to spend which ultimately lead to increase in the inflation rate in the nation (Hansen, 2018).
• On other hand, in case there is decrease in the liquidity in the market and in that case, it is possible that demand for
products get declined in the market which ultimately lead to deflation in the economy. Both inflation and deflation are
harmful for the economy. Deflation is more dangerous then inflation. This is because if there is inflation then in that case
with its decline demand increase gradually which ultimately benefit the nation economy.

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• On other hand, if there is deflation in a nation then it means that there is no demand in the market. Ultimately,
profitability of the firms shrinks and they failed to survive in the market. All these things lead to increase in
unemployment on large scale in the nation. In such kind of situation monetary policy acts as a tool that assist
nation in dealing with inflation and deflation pressure. Monetary policy tools that central bank of England use is
given below.

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• Bank rate: It is the rate at which Bank of England lend money to the commercial banks in the nation. When this
rate is increased loans for commercial banks become dearer and this impact is passed to the final clients or those
who take loan. Means that if loan is increased by the central bank of England then in that case loan will become
dearer. This will lead to change in people behaviour and they will take less loan for their business and home need
etc. Opposite to this in case central bank reduce interest rate then in that case commercial banks will got loan at
cheaper rate and commercial banks will lend money at cheaper rate (Williams, 2016). Hence, more and more
people will take loan from the bank. In order to understand overall impact of monetary policy on nation economy
it is necessary to analyse to understand impact of monetary policy on nation economy. Important point to note is
that few months ago central bank of England raise bank rate by 0.25% to 0.75%.

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CONTINUE
• Facts reflect that from 2010 to 2015 bank rate was constant at 0.50%. Thereafter, this rate gets declined to 0.25%. Same rate remains
constant till 2017 and after that bank rate start rising to 0.50 and remain till mid of 2018. After mid of 2018 sharp fluctuation or traction can
be observed in above chart and interest increased to 0.75% from 0.50%. It can be said that after 2017 bank rate keeps on increasing
consistently.
• It is very important to identify impact of such kind of hike in interest rate on the nation economy. First it is necessary to understand game of
gain and loss in context of higher interest rate. In case as we see Bank of England increase interest rate to 0.75%. Due to increase in interest
rate those who save money in banks will earn more interest. On other hand, those who take bank loan will have to pay more. It is well
known fact that firms take large amount of loan in a year. Increase in interest amount will heavily affect firm’s profitability (Bianchi and
Ilut, 2017). If economic condition of the nation is not good then in that case firm’s performance heavily get affected and further elevation
in interest liability have a huge impact on their profitability. This may lead to cutting down of the firm business operations and elevation in
unemployment rate in UK. So, higher percentage of interest rate may affect nation.

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• In present case main reason behind increase in interest rate was elevation in inflation rate. Target of Bank of England is to contain
inflation rate to 2%. It was expected that inflation rate will breach 2% level and due to this reason interest increased to 0.75% which is
higher since 2009 recession time period. Assumption is that increase in interest rate will lead to dearer bank loan and hire interest
payment liability which to some extent will reduce investment from people side (Ćorić, Šimović and Deskar-Škrbić, 2015). If people
still consistently make investment then their savings will decline which will lead to less demand in the market and curb in inflation rate.
• However, this thing if remain continue in upcoming time period then in that case economy may face big trouble. This is because due to
increase in interest rate inflation rate will come in control but due to availability of loan at cheaper rate investment by the firm will also
reduce. If investment will reduce then slowdown will be observed in the company operations and ultimately, they will start facing loss in
the business (Ban, 2015). Such kind of thing cannot be assumed good for the firm. In turn business firms will not do well it will
definitely affect UK economy. In this way monetary policy affect UK economy.

QUANTITATIVE EASING
• It is another important tool that is used by the Bank of England to stabilize the nation economic condition. Under this approach Bank of
England make purchase of government bonds from banks and pension funds. This inject liquidity in the market. Ultimately bank lend
more money to the business firms which promote investment in the nation economy. This lead to increase in employment rate, growth in
nation economy and revival of demand in the market for product. In order to understand significance of the quantitative easing program
it is necessary to analyse few facts. Across the world, two nations namely USA and UK adopt quantitative easing approach on large
scale. Since 2008 USA Federal reserve make a purchase of bond valued at $3.7 trillion and UK Bank of England make a purchase of
$550 billion purchase of government bonds in the market. Till the time role played by quantitative easing program in economy recovery
is debatable. However, central banks of USA and UK rely heavily on quantitative easing program because it assists them in injecting
more and more cash in the economy which ultimately promote nation economic growth (Chamberlin, 2015).

CONTINUE
• UK economy now is on growth track and due to this reason now Bank of England increase interest rate to
0.75%. US Federal reserve already start sale back of asset purchased during QE program. Bank of England is
also planning to do same thing. It just wants to ensure that in case any economic turmoil happened there is
sufficient amount of fund to absorb any jerk. It is observed that after initiating quantitative easing program after
2009 in UK situation become better and those who comes in low income slab are also earning more. This
promote consumption in the economy and lead to further elevation in demand in the market. All these things
ultimately lead to increase in spend in the economy from people side. Hence, profitability of the firms gets
increased. It can be said that quantitative easing plays crucial role in recovery of the UK economy.

FISCAL POLICY
• Fiscal policy is the one of the important tool that is used by the nation government to fight with member of problems like
unemployment etc. It can be observed that when economy gone through recession then in that case government boost its capital
expenditure on the public infrastructure. Such kind of thing provide employment to large number of people in the economy
(Hommes, Massaro. and Salle, 2019). Major instruments that comes under fiscal policy are taxation policy, expenditure policy,
investment policy, disinvestment policy and debt as well as surplus management. In the taxation policy government decide the
tax rate that will be charged on the different slabs. Government on yearly basis evaluate tax slab and, on that basis, decide
whether to change tax rate or values determined previously will also be carry forward (Leith, Moldovan and Rossi 201). It is the
determination of tax rate which determine amount of revenue that will be earned by the Government during entire financial
year.

CONTINUE
• . Many times, during recession time period investment from business firms declined. In that time Government by making public expenditure
inject money in the economy. Thus, it can be said that fiscal policy plays vital role in growth of the nation. It is this policy which determine
amount of tax that will be received by the government. It is the fiscal policy which lead to creation of more and more employment
opportunities in the nation and at the workplace. Thus, it can be said that overall fiscal policy benefits a lot to the business firm
• Fiscal policy mainly carried or related with the word taxes. As it is in the hands of the government to impose taxes on particular products or
services or mainly it can be related to norm or regulation which manage the overall working of the company. As government carry major
rights in respect of adjusting the taxes as by this aspect they protects the economy of the country and also impose restriction in respect of
importing or dealing in any goods and services outside country (Mason. and Jayadev, 2018). In respect of UK, their major aspects is to deal in
exporting business but restrict the transaction relating to importing of goods. The main reason of taking this action is that they had to secure
the integrity and dignity of the country by increasing the economy of the country and also enhancing the manpower in country. In this respect,
government takes the power to impose fiscal policy in relation to adjusting their taxes so that they manage the economy in better way.

ELEMENTS OF FISCAL POLICY
• The major elements of fiscal policy in respect of securing the overall integrity of the country are as follows:
• Expenditures: In respect of this aspects, the expenditure are incurred in respect of capital expenditure which
stated the overall productivity of the country. As in respect of capital expenditure, they mainly based on
machinery, equipment’s which is adapted by business in context of producing the goods or services. As this is
one of the major expenditure which is incurred by company in respect of sustain their business for longer time
period. Thus, the expenses are faced in respect of managing the productivity and also resulting in increasing
the productivity of the business (Nakata, 2016). As organisation main motive is to grab the advance technology
so that they can increase the productivity in business and also beat competitor sin better way.

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• Revenue: In respect of Revenues, they are occurred in respect of interest paid on government norms. They mainly discussed
in context of fixed assets and they also related to any cost incurred in relation to dealing in any goods or services or any legal
expenses which beard by organisation is. It also carries the expenses related to advertisement cost or printing cost.
• Deficit financing: In context of deficit financing, the decision is taken by government in respect of spending more time in
taking the right decision. The decision is to be undertaken in perspective of printing new currency so that they can manage the
integrity of the country in better way. In respect of this procedure, the inflow of the money increases and also the purchasing
power of the buyer also increases. As by getting new currency in market it also results in improving the economic condition
of the country (Jawadi, Mallick and Sousa, 2016). As they provide chances to the country own business organisation to grow
their business through bringing innovation or ideas in products.

CONTINUE
• The impact of fiscal policy reflects both positive and negative impact upon the business. As the positive impact
arises in respect of supporting the infant industries to grow the business and also support them to promote the
products at national level. Through this aspect they able to reach and support the industries to manage the
productivity in better way. In respect of reflecting the negative impact, the issue arises in respect of bounding the
company to growth business at large scale. As by imposing taxes organisation also bound to innovate new
productivity in market.

B) DEVELOPMENT IN RESPECT OF GLOBAL AND REGIONAL
ASPECTS SHAPING THE ACTIVITIES OF BUSINESS
• Global factors greatly affect any nation economy. This is because now entire world turns in to global village and interest of nations are
interconnected and interdependent on each other. For example, USA is world leading importer and exporter of goods. If its economic health will
decline then in that case its trading partner will face a lot of problem and their economy will also get affected by it. This was one of the main reason
behind widespread impact of recession at global level (Furman, 2016). Issue originate in USA but it affects most of the nations of the world. It can
be said that global factors have huge impact on the business firms. Some of the global factors are discussed below.
• Global factors affecting business activities
• Political factor: Political environment of global level greatly affect business firms. This is because time to time nations representatives meet each
other and sign bilateral agreements with each other. Such kind of things promote trade between them. On other hand, if fight start between two
nations or dispute arise between them then in that case trade heavily get affected. For example, between India and Pakistan after abandonment of
article 370 trade almost become zero. India export tomato and other vegetables to the Pakistan before abolishing article 370 now Pakistan place a
ban on import of goods. Hence, due to shortage of vegetables their price rise 300 Rs kg.

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• Thus, Pakistani firms failed to sold agriculture proceeds in the market. Thus, it can be said that global and political factor within it have huge impact on
the business activities of the firm (Stiglitz, 2015). Apart from this, now days most of the nations are paying focus on carbon control and they are advising
business firms operating in their nation to take measures that control carbon emission from their business. In this regard, business firms are innovating
their business operations and technical infrastructure. Firm are making efforts to develop green technology so that from factories emitted emission can be
controlled. Moreover, many companies are preparing products that can be easily disposed off and does not spread pollution. Firms like Tesla is producing
electronic car so as to reduce carbon emission. Thus, it can be said that political factors on multiple fronts is affecting business firms.
• Economy: Economic factor to great extent affect business firms. In other words, it can be said that global economic factor in past couple of years to large
extent negatively affect business firms. Trade war between USA and China greatly affect both nations firms and other countries economy which are
closely related to the USA and China. It can be said that effect passes from one nation to another nation. Apart from this, in order to understand broadly
global economic factor USA sanctions on Iran can be taken in to account (Prajogo, 2016). Due to sanctions many nations of the world does not do trade
with Iran which negatively affect its economy.

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• Widespread economic turmoil at global level affect nation economy and people capability to spend on consumption of goods.
Such kind of things affect business firms to great extent. Oil prices is another factor which have huge impact on the nation
economy. It can be seen that with increase in oil prices same of manufactured goods also increase. It is not possible for the
firms to pass such effect on customers easily. Thus, firms earn low margin in their business and face lots of problems (Bah and
Fang, 2015). This reflect that global economic factors have huge impact on the firm’s profitability.
• Technological: Technological factor also greatly affect business firm’s profitability. This is because there are many lines where
firm need latest technology to develop products and to satisfy needs of the customers. Best example is computer technology and
mobile as well as manufacturing sector. In these industries it become very important for the firms to provide innovative product
to the customers in order to remain ahead of the customers. Not only quality matter durability of the product is also given due
importance by the business firm. Some of the firms like Nokia does not update their technology base and due to this reason
failed in their business.

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• Kotak camera also failed because it consistently based its product on reals while Samsung developed digital camera and control entire industry (Georgescu
and Popescul, 2015). Thus, it can be said that technology factor affects a lot to the business firms. If firm will have strong technology base it will lead
market but if it will have poor technology infrastructure then in that case it will be out of competition.
• Regional aspects of business environment.
• Regional aspect of business related to the environment in which business is operating. The environment in which company is operating plays a significant
part in the success and growth of any business. Every company is required to consider the factor that influences the regional sales and market for company.
Before establishing any businesses, it is important to study the regional environment in which it is proposing to establish its business. For running the
business successfully, it is important that regional people are first satisfied by the company. For example, a manufacturing unit cannot be established in the
social localities that disturbs the business. A place where any company selling products that are against their traditions can make the company to suffer and
face closure (Saleem, 2015). The traditional sentiments of the people and the society in which business is established should be respected by the company.

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• For increasing the sales company can make promotions over the festive seasons of the region and involving in
the traditional events. This helps the business to gain the trust of people that helps business to establish its
positing in the region. Regional aspects also include the laws and legislations of the country in which business is
operating (Erasmus, Strydom and Rudansky-Kloppers, 2016). They are required to comply with the regional
regulations and requirements of statutory authorities.
• Though globalisation has increased the cross-border trade but people are still connected with their traditions.
They always encourage businesses that respects their emotion and traditions. Many companies modify their
products as per the regions in which they are operating on of the best example in for this is Unilever that adds
the name of country in which is delivering product In its company name. This has helped company to establish a
large local customers base. Therefore, no business can ignore the importance of regional aspects related to the
business environment.
•

CONCLUSION
• On basis of above discussion, it is concluded that business environment to large extent have impact
on the business firms. This is because global conditions keep on changing consistently. These
conditions have both positive and negative impact on the business firm. It is also concluded that
monetary and fiscal policy play vital role in growth of a nation economy. Turmoil in global
economic condition negatively affect an economy. In such situation it is monetary and fiscal policy
which bring stability in the country economy and ensured that nation will again be on growth track.
There is multiple component of monetary and fiscal policy and it is their effective use which bring
back nation economy from recession.

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