Global Business: UK Government Policies to Control Inflation Analysis

This report examines the challenges posed by inflation in the global business environment, focusing on the UK government's responses. It defines inflation, discusses the impact of interest rate policies, and explores theories such as demand-pull and cost-push inflation. The report also outlines economic models used for analysis and details specific measures taken by the UK government to control inflation, including increasing tax rates, adjusting interest rates, reducing government expenditure, and promoting consumer saving. The conclusion emphasizes the importance of managing inflation to maintain purchasing power and economic stability. Desklib provides access to similar reports and study resources for students.

Global Business
Environment

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
What is inflation?.........................................................................................................................3
Affect of interest rate policy towards inflation............................................................................3
Theories of Inflation....................................................................................................................3
Models of economics...................................................................................................................4
Measures taken by UK government.............................................................................................4
CONCLUSION ...............................................................................................................................4
REFERENCES................................................................................................................................6
Books and Journals......................................................................................................................6

INTRODUCTION
The challenges, hurdles or opportunities that are being faced by businesses at the time of
performing its operations at global level are termed as global business environment. The working
of one organisation affects others performance thus they are interconnected with each other. Due
to political factors organisations are badly impacted (Bergman and Foxon, 2020). One of the
major challenge which organisations have to face is due to government policy related to interest
rates. This report is based upon the responses of UK government towards rise of inflation within
the economy.
MAIN BODY
What is inflation?
When the rise in prices of products or services takes place, due to which purchasing power of
customers declines is considered as inflation. The situation of inflation arises when the there is
increase in supply of money (Elbahnasawy and Ellis, 2022). The situation of inflation also arises
when the demand for products or services rises and the capacity to product its is low. In this
situation the organisations are not capable to fulfil the rising demand of customers.
Affect of interest rate policy towards inflation
The interest rate policy as well as the inflation arise in the economy moves in same
direction. The UK government take necessary steps against interest rate policy in order to control
inflation. When the interest rate charged by government is low then the customers prefers to take
loan rapidly, due to which flow of money rises (Bradshaw, 2022). The rise in supply of money in
market leads to arise in situation of inflation. Whereas, if the government make changes in the
interest rate policies and start charging higher prices then the customers will be not interested in
availing loans. This is how the government of UK keeps a balance between interest rate policy
for avoiding situations arise by inflation.
Theories of Inflation
 Demand pull inflation – When the demand is high and availability of goods as well as
supply of goods or services is low at the current prices then inflation due to demand pull
arises (Burgess, 2020).

 Cost pull inflation – The cost pull inflation states that the prices of products are not only
rises by the excess of demand, it also arises when cost of producing products starts rising. Mixed demand inflation – This theory is the combination of cost pull inflation and
demand pull inflation. The inflation arises due to increase in demand as well as increase
in production cost (Foster and Stagl, 2018).
Models of economics
 Stochastic model – This model states that it is a tool through which probability
distribution is being estimated with the help of using the final results.
 Non- stochastic model – The likelihood and probability of non- stochastic model
depends upon the explanatory variables (Geels, 2020). Qualitative model – The concept of economics is incomplete without the use of
quantitive or the mathematical approaches, which is being used in is model of economics.
Measures taken by UK government
The necessary measures taken by UK government towards the rise of inflation are as follows -
 The government of UK increase the Tax rates, so that more amount is being collected for
citizens (Melolinna and Tóth, 2019). The local community will spend less on expenditure
and this is how the flow of money in market will be reduced also with inflation.
 By increase in interest rate, the consumption level of local community will fall, along
with the fall in prices of products or services. This is the easiest way which is being used
by UK government to control inflation.
 The other measure that is being taken by UK government is to make reduction on
government expenditure. This is how the amount will be kept save among the
government and flow of money supply will be reduced.
 The government of UK also promotes consumers saving. When the citizens starts saving
the flow of money supply will decline naturally.
CONCLUSION
From the above report it can be concluded that, the increase in inflation lowers
purchasing power of local community. By spending huge sum of money they will be able to

make purchase of fewer quantity of goods. The government of UK makes necessary changes in
interest rate policies for controlling inflation.

REFERENCES
Books and Journals
Bergman, N. and Foxon, T.J., 2020. Reframing policy for the energy efficiency challenge:
Insights from housing retrofits in the United Kingdom. Energy Research & Social
Science, 63, p.101386.
Bradshaw, J.R., 2022. Impact of inflation on low-income households in the UK.
Burgess, C.P., 2020. Introduction to Effective Field Theories and Inflation. Effective Field
Theories in Particle Physics and Cosmology: Lecture Notes of the Les Houches
Summer School: Volume 108, July 2017, 108, p.220.
Elbahnasawy, N.G. and Ellis, M.A., 2022. Inflation and the Structure of Economic and Political
Systems. Structural Change and Economic Dynamics, 60, pp.59-74.
Foster, G. and Stagl, S., 2018. Design, implementation, and evaluation of an inverted (flipped)
classroom model economics for sustainable education course. Journal of Cleaner
Production, 183, pp.1323-1336.
Geels, F.W., 2020. Micro-foundations of the multi-level perspective on socio-technical
transitions: Developing a multi-dimensional model of agency through crossovers
between social constructivism, evolutionary economics and neo-institutional
theory. Technological Forecasting and Social Change, 152, p.119894.
Melolinna, M. and Tóth, M., 2019. Output gaps, inflation and financial cycles in the
UK. Empirical Economics, 56(3), pp.1039-1070.