TEAM RESEARCH AND DEVELOPMENT PROJECT

Running head: TEAM RESEARCH AND DEVELOPMENT PROJECT
Team research and development project
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TEAM RESEARCH AND DEVELOPMENT PROJECT1
Topic: The impact of inflation rate on the gross domestic product in the United Kingdom
Part A
Research question
What is the impact of inflation rate on the gross domestic in the United Kingdom in past two
decades?
Part B
Introduction
This report aims to examine the impact of inflation rate on the gross domestic product of
any company. Inflation is a common aspect in majority of the global economies and variety of
countries face challenges in developing economic growth. The price system efficiency is
significantly affected due to the lack of balances in the real money. The inability to
systematically understand these issues results in inflation in most of the countries. Inflation
control is one of the major factors in developing monetary policies in traditional environment.
Aggregate control of demand is another factor is essential for monitoring the economy (Lim and
Sek 2015). Past researches have stated that macroeconomic reforms such as privatisation and
liberalisation must be implemented to improve the economic condition and develop an open
economy. The analysis of the past studies has shown that inflation has been paid attention in both
empirical and theoretical studies. Moreover, inflation is expected to have significant impact on
unemployment rate in an economy.
Background and research problem
The majority of the countries in the global market have faced issues in developing a
stronger economy in the market where inflation comes into play. In developing countries, with
the growth of the economy, there is a significant increase in inflation rate. Gross domestic
product of a country increases which shows an increase in inflation rate (Lim and Sek 2015).
The analysis shows that with increase in demand in the market, there is a significant increase in
production, employment opportunities which further increases demand in the market. This
increases the disposable income of the consumers and it increases GDP and inflation at the same
time. When there is no demand, production volume decreases and it leads to increase in inflation
and GDP due to the decreases in consumer demand and supply (Khan et al. 2018). On the other

TEAM RESEARCH AND DEVELOPMENT PROJECT2
hand, when the demand is high and the supply is short, it increases the employment rate of any
organisation which increases the GDP and inflation. However, in developed countries like
United Kingdom, they face the problem of deflation. These countries set a target of 2 percent
inflation rate (Majumder 2016). It is used for adjusting the monetary growth and instruments
such as reserve ratios and interest rates. In the past few years, it has been seen that there has been
a significant negative change in inflation rates in developed countries which indicates slow
growth of the economy which stagnates the per capita income and declines wages. Therefore, the
study aims to examines the relationship between inflation rate and GDP in the United Kingdom
as it is a developed nation and going through economic slowdown in the past few years.
Research question
What is the impact of inflation rate on the gross domestic in the United Kingdom in past two
decades?
Literature review
The analysis of the past literature sources has shown that a long history of studies
identifying the existing relationship between GDP growth and inflation rate. The view of various
economists changed over time but initially the negative impact of inflation rate on GDP was not
considered. Series of studies in the 60s showed that there was no negative impact of GDP on
inflation. Majumder (2016) performed a study to identify that there were no significant negative
or positive impact of inflation rate on GDP of a country. On the contrary, Khan et al. (2018)
performed a study which showed that there was significant negative impact of inflation rate on
the GDP. Numerous studies in the 70s have showed repeatedly that inflation rate has negative
impact on GDP. Other studies have examined the impact of the inflation rate on countries having
high inflation in other countries. Ramlan and Suhaimi (2017) performed a study which examined
the impact of inflation rate and gross domestic product growth by using cross sectional time
series regression analysis. Lim and Sek (2015) analysed data from more than 100 countries from
1960 to 1990 which showed that there has slow down in the economy due to the increase in the
inflation rate. Muhibbullah and Das (2019) showed that cross-sectional correlation between gross
domestic product and inflation rate exists in case of high frequency data. On the other hand,
Hong, Razak and Hamzah (2015) states that negative impact of inflation rate is realised after it
crosses the threshold frequency. Moreover, there are studies which aimed to examine the non
linear relationship between these two variables.