Assessing the Impact of Fiscal and Monetary Policies on UK Businesses

This report delves into the UK's business environment, focusing on the impact of fiscal and monetary policies. It defines key economic concepts, explaining how the UK economy functions and the roles of fiscal and monetary policies, including their origins and implementation within the UK. The report assesses the current economic state of the UK, examining factors such as GDP, public finances, debt, spending, and the surplus/deficit. It also explores how interest rates affect money supply and demand, and identifies potential factors that could lead to an economic crisis in the UK. Additionally, the report touches upon the influence of regional and global developments on business activities. The report provides a comprehensive overview of the UK's economic landscape and its implications for businesses, offering valuable insights for students studying business and economics.

INTRODUCTION TO BUSINESS
ENVIRONMENT

Contents
INTRODUCTION...........................................................................................................................3
QUESTION 1..................................................................................................................................3
Assess and explain the impact of fiscal and monetary policies on the activities of business
organizations in United Kingdom................................................................................................3
1.Meaning of economy................................................................................................................3
2.Explain how the economy is formed........................................................................................3
3.Explain what is meant by Fiscal Policy....................................................................................4
4.Explain what is monetary policy..............................................................................................5
5. What is the current economic state of United Kingdom..........................................................5
6. How does the interest rate affect money supply and demand?................................................8
7.What factors in the United Kingdom economy can lead to economic crisis?..........................9
QUESTION 2..................................................................................................................................9
How Development in a regional and global aspect can shape business activities global aspects
.....................................................................................................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Business environment can be defined as that environment in which the organizations are dealing
in. It also comprises of the various internal and external factors that are affecting the working
conditions of various firms. The internal factors consists of competitors, suppliers, stakeholders
and many more. External factor that can affect business re political economical social and many
more. Present report will lay emphasis on the impact of fiscal and monetary policies on the
activities of business. It will also present how the economy of United Kingdom will be formed.
QUESTION 1
Assess and explain the impact of fiscal and monetary policies on the activities of business
organizations in United Kingdom
1.Meaning of economy
An economy of a country can be defined as the big combination of the activities related to
production and consumption which aids to determine that how scarce the resources can be given
to particular region. Economic condition of the region defines that how scares the resources can
be allocated. An economic system also consists of production and consumption as a part of it
which analyses and fulfil the needs and demands of living. A countries economic condition is set
to be good when the living conditions of people in country are stable and better. Also it can be
analysed from the environment existing in country. An economy consists of all the activities
which is linked with production, consumption and trade.
2.Explain how the economy is formed
The economy of the United Kingdom is highly developed and market oriented. The economic
condition of any country is being measured by analysing its gross domestic production. It has
been analysed that business and conditions of market can be a big part of UK economy. There
are various components that make-up economy of United Kingdom. These can be businesses and
financial institutions, consumers and labours, government and many more. Businesses make up
the United Kingdom economy by creating sales, they get things and sale it local consumers
increasing the gross national income of country. This can support country like United Kingdom
in growing. Financial institutions make up the United Kingdom economy by providing loans and
granting funds to these businesses. Consumers and labours are also one of the most important
part which make up the economy. All of these people, collectively called labour, are responsible
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for the business being able to produce value for the United Kingdom economy at all. Without
them, those businesses would not exist.
3.Explain what is meant by Fiscal Policy
Fiscal policy can be defined as that policy in which the government is involving in settling the
levels of spending and tax rates so that the government can keep a check on nation’s economy.
Monetary policy can be termed as the sister strategy to fiscal policy. Both monetary and fiscal
policy is of most importance for the country. Fiscal policy can put an impact on the money
supply of nation. There can be two main instances of fiscal policy like tax cuts and an increased
government spending. The two policies can assist United Kingdom in achieving and settling
down their economic goals and objectives. This can assist country in saving them from the
phenomena related to economics. Fiscal policy can be used by the country to maintain the high
economic growth. This can also be utilized by United Kingdom to cut down the unemployment
rate in a country. Policies like Fiscal and monetary can support country in growing and achieving
the nations goals and objectives.
Briefly explain how this policy came out
Fiscal Policy came out by a famous theorist and British economist who is known as John
Maynard Keynnes. The theory given by him keenly explains that government is being engaged
in increasing the productivity level related to macroeconomics. This can be done by increasing or
decreasing the tax rates and public spending. If this is done by government of United Kingdom,
then this can curb inflation by about 2-3%. It can support country in growing and increasing the
employment level. The policy related to Fiscal plays the most important part in maintain
economy of country.
Does this policy exist within United Kingdom?
Yes, United Kingdom do make use of fiscal policy. The main aim of country’s fiscal policy in
2018 was to cut down the deficit related to fiscal by 2% in coming years 2020-2021 (Chubb and
Watermeyer, 2017). This is because of the country is at risk related to macro-economic and
financial sector risk. Like for example It is because the country is facing slowdown in North Sea
oils and gas. Also this policy is being implemented because there has been a long term risk
which is being arising because of the structural changes in Economy. In order to overcome this
Fiscal Policy has been implemented. Fiscal Policy has also been implemented because of the
changes which are occurring in demography. The country is facing high risk because of the
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rising age in population and high dependency ratio. Indirect costs that reflect the fiscal effects of
the damage that financial crises do to the economy such as lower profits and rising
unemployment. United Kingdom government is involved in making sure that there is no tax
evasion in digital business. The Fiscal policy will support country in balancing the gross
domestic product and also reducing the unemployment level which is being existing in country.
4.Explain what is monetary policy
Monetary policy can be defined as that policy which is being used by the authority which is
monetary in a country. These authorities are engaged in monitoring the rate of interest that can
be paid over a short period of time. Monetary policy puts a major emphasis on the inflation or
rate of interest so that the government can ensure stability which is related to pricing and also the
general trust in currency. These policies when implemented can rise up the liquidity position in
country which helps in also enhancing the growth related to economy. Monetary policy helps in
cutting down the liquidity aspects which helps in preventing the inflation which exists in
country’s economy.
Does this policy exist in United Kingdom?
Yes, monetary policy does exist in United Kingdom. The responsibility related to this policy has
been given to Bank of England’s monetary policy committee which is known as MPC. It has
been analysed that monetary rate policy has a more powerful impact on spending which is
particularly related to households. Like for example the evidence also interprets that the
consumers in United Kingdom has an elastic interest rates. It has been implemented by the
committee so that they can hit the inflation rate target up to 2%. It has been analysed in United
Kingdom that in year 2017 the base rate has cut short to 0.25% in August 2016. It was because
of uncertain events like Brexit which happened in the country. The reduction in rate of interest
has brought up the aggregate demand. Thus this has affected the economy of United Kingdom
positively. But in this situation cost of inflationary pressure will be too high. Also the monetary
rate policy was beneficial for the United Kingdom government as it was easy to implement.
5. What is the current economic state of United Kingdom
It has been analyzed that the current economic state of United Kingdom has been modest at the
rate of 1.4% in 2019. It has also been interpreted that in 2020 the rate will be at 1.20%. It has
also been analyzed that the young tenants living in country will generate revenue up to 53%
which can be spent on rent. The Gross domestic product level of United Kingdom has been
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boosted up and has matched the performance of Swedish labor rate. They have generated a
revenue of £250bn. Spending related to consumer has helped United Kingdom in economic
drive. This is really positive for the growth of country. It has been analyzed that the prices
related to consumer inflation will be remain closed which is nearly about 2%.
United Kingdom public finance- Public finances has been hit hard because of the global
financial crisis which has created the state of deficit in the United Kingdom. In this the
government has created a debt of about £1.78 trillion. The level of debt has been tripled in this
year (Janssens-Maenhout and et.al., 2015). This summer has shown a significant amount of
change as it has been analysed that the economy of United Kingdom has shown a growth of
about 0.4%. This is a sign of positive indicator. It has also been interpreted in this year
government of UK has put down the highest consolidated balance sheet. It Also included the
largest consolidation. These consolidations have organizations over 7000. It also comprises of
central government, local authorities, National health service organizations and many more.
Debt- It has been analysed that the debt in the year 2018 has been noted at £1.78 trillion. They
have recorded that 56.5% of gross domestic product has been seen in the United Kingdom’s
economy. British Government has owned about one third of debt because of Bank of England
Quantitative easing programme. It has been analysed that the debt related to public has been
raised up to £48 billion which has amounted to about 4% of Gross domestic product of United
Kingdom or about 8% of GDP. It has also been interpreted that because of deficit in
Government’s current budget deficit, the public debt has shown an increased trend. Annual
service cost has also increased up to £30 billion. Also the national debt has shown an increased
trend in the year 2018.
Spending- It has been analysed that the spending of government in United Kingdom is 92918.00
GBP Million by the end of this quarter. This report has been analyzed by trading economics
global macro models. It has also been interpreted that government has already spent 95579 in
these 12 months of year 2018. In the year 2020 it has been forecast that the spending of
government will be 97067.00 GBP. The United Kingdom government spending at local and
international level is different. Local government is involved in giving the grants to school.
Government spending are also being done in setting up the budget, taxes are also being included
in that. Also the government of United Kingdom is being investing the expenditures related to
public. This has increased the costing level of government both at national and international
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level. It has been analyzed that the government of United Kingdom spending has tremendously
increased from July 2016 to July 2019.
Surplus/deficit- United Kingdom has faced surplus/deficit in the year 2018. The deficit has been
analyzed at £32.3 billion. It has been analysed that from previous year there has been a decreased
of £5.3 billion. It has also been interpreted that the government of United Kingdom has been in
debt and also the debt has been rising. It is because the differences which are coming in the
revenue and expenditure (Gibbs and O’Neill, 2015). This can lay impact on growth of United
Kingdom. It has been analysed that the deficit in last calendar year has been £69 billion. The
debt which is related to public will show increase or decreasing trend because of the result of
annual budget deficit. It has also been noted that the revenue in last calendar year was £742
billion while the earning was only £643 billion. So this was a condition where United Kingdom
government. needs to give keen thought on the deficit aspects of country. It has also been
reported that the debt in British government raised for reign of king William III. National debt
will lead to fall down in Gross domestic production of United Kingdom. It has been analysed
that in the year 2006-2007 the annual GDP of United government comprised of 40% of total
spending of them. Government has faced very critical situation at this time. National debt has
been increasing day by day. So government United Kingdom needs to lay more emphasis on it.
So that they can save their spending (Siddiqui, 2019).
UK labour market (employment/unemployment): From the month July to September and
October to December in year 2018 it has been analysed that the people are more engaged in
working. It has also been interpreted that the unemployed people rate has been decreased. Also
the people aged between 16-64 working has also been decreased. This has been the current
scenario in United Kingdom. It has been interpreted that the 32.6 million has been involved more
in work. It was 167000 more than the year 2018 September. It was 444000 more than the year
2017. This was the employment and unemployment rate in the year 2018.
Inflation: United Kingdom economy has been seen stable but sluggish. This has been published
by a report. Inflation rate can be defined as that rate at which prices of goods increases. The rate
of United Kingdom has been marked at 2 to 2.5%. It has been analysed that in September 2016
the rate as marked at 1.7%. It has been marked the rate which was lowest in the year 2016. In
July 2019 the rate related to inflation was 2.0%. The next rate related to inflation will be realised
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on 13 November 2019. Second hand cars, motor fuels have seen the downward trend in the
current year which is 2019.
Interest rate (Current rate of interest): It has been analysed that Current base rate of United
Kingdom is 0.75%. It has been also recorded that the rate of interest has been raised from 0.5%
to 0.75%. in the year 2017. After that the economy of United Kingdom has been slowed down.
The rate of increased has been increased after the effect of Brexit. It has shown up an increased
trend after the year 2016. The interest rate has been used by bank so that they can keep the
inflation rate up to 2%.
6. How does the interest rate affect money supply and demand?
Yes, money supply does affect the interest rate as the higher the money supplies the lower will
be the rate of interest. In this situation the consumer can take more amount of loan at lower
interest rate and also their borrowing power can be increased. This will also increase the lending
and investment which is being done by investors. This can support United Kingdom in
increasing their gross domestic income. It is always equal to higher aggregate demand. The
increase in demand of money also made the demand curve shift. The relationship between the
price level and the money supply can be seen in periods of hyperinflation (Salemdeeb, Al-
Tabbaa and Reynolds, 2016).
What impact this can have on business that is on small and medium size organizations in
United Kingdom.
Changes in the rate of interest in United Kingdom can affect the economy in both positive and
negative ways (Martin and et.al., 2016). It has been analysed that in UK Small and medium size
enterprises has been paying higher rate of interest than all other type of countries. So this has
increased the operational cost of all small and medium size organization. The increased in
decrease in the rate of interest also affect the consumer psychology. The low rate of interest can
help small and medium size business in their growth. They can cover more amount of market
share and also their profitability can be increased. This low rate of interest can help Small and
medium size enterprise in growing. It can also reduce their operational cost. Also the efficiency
of business can be increased after this. So the rate of interest must be kept low by the Bank of
England in United Kingdom. After Brexit also the interest rate has been affected.
What impact could this have on overall economy?
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It has been analysed in United Kingdom that the interest rate has been changed from the year
2009 to the year 2019. In the year 2009 the interest rate in UK was at 6% which came down to
0.75% in the year 2019 (Fethi and Katircioglu, 2015). It has impacted the UK economy in a
positive way. It has also been noted that in the quarter third the economy of United Kingdom has
been expanded by 0.2%. It has been weaker when compared with the last quarter. It was 0.3%
weaker.
7.What factors in the United Kingdom economy can lead to economic crisis?
The factors which can lead to economic crisis in United Kingdom is higher rate of interest. As if
the rate of interest increases it can lower down the purchasing power of people. It can also
shorten down the money supply in economy. United Kingdom can face a period of recession if
this happens. The prices related to houses in United Kingdom if falls then this can also lead to
economic crisis in the country. It will also lower down the spending and buiyin g behaviour of
consumers.
QUESTION 2
How Development in a regional and global aspect can shape business activities global aspects
Global aspect can helps to shape business activities because global market have more
potential then the regional market. Development in the global market increase the opportunities
for the company. They can increase and expand their market by entering in the international
market(Davis and Walsh, 2016). It is impotent for company to make their product more unique
and quality wise because there is more competition in the global market as compare to the
regional market there are some ways top enter in the market which can helps company to
increase their growth and they can expand more (Janssens-Maenhout and et.al., 2015).
Franchising - this is one of the best ways to enter in the global market for company , this helps
to expand their business to the all over the world. In a franchising company give their right to
the to others so they can open same brand in their company. And the main branch take some
amount from the profit. Franchiser have to follow same manufacturing process and product
which is following by franchise company. Direct export – this also one of the best ways to
expand business in the other country . In this process company take helps from the middleman
who take helps company to take their product to the other market this helpful for company
because this is simple and best way to expand business . Company can also get information
about the other country mar4ket and needs of the people in particular country.
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Regional aspects
Development in the Regional aspects can shape the business activity if company
implement new technology in their business then they can increase business activities in their
company because technology helps to increase the production in the business and company can
increase their product capacity by using those technology. It is important for organizations to
implement new technologies in the workplace so employees can use those technological and
develop some skills (Capello., 2015). The essential conditions for innovation effectively
ensuring economic growth,increased national competitiveness and other positive changes is
innovation implementation in the economic activities of particular enterprises. An innovation
policy has to take into account regional aspects because regions play an increasingly important
role as sources of innovation changes. The present paper considers the regional aspects of
innovation implementation in the company. Company should look for their employees because
employees play important role in the organization, company can provide them shifty and medical
facilities so employees can feel safe to work for the company It will increase the work
efficiency in the employees and they will work without and fear. Employees are important part
of the company companies were confronted with the same problem, the region around the small
town of the Little family started with a regional network in order to link existing enterprises and
to make the region attractive for new enterprises it is important. The foundation of a technical for
biotechnology five years ago contributed decisively to the success.
CONCLUSION
From the above report it has been summarised that the Fiscal policy has been implemented in
United Kingdom. It has also been reported that the rate of interest after Brexit has one too high.
In the state the rate of inflation has also been increased which has also enhanced the supply of
money. It has also increased the borrowing power of consumers. This has also increased the
Gross domestic product in United Kingdom. The inflation rate was marked at 2% in the year
2017. This has a positive impact on the economy of United Kingdom. It has led to growth of
economy. It has also been noted in the reported that if economic crisis occurs the main reason
will be high rate of interest. It can bring out the crisis in Economy of United Kingdom. The
country can face recession period because of this. It will also reduce the purchasing power of
consumers and their buying behaviour will also be changed.
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REFERENCES
Books and Journals
Davis, A. and Walsh, C., 2016. The Role of the State in the Financialisation of the UK
Economy. Political Studies. 64(3). pp.666-682.
Fethi, S. and Katircioglu, S., 2015. The role of the financial sector in the UK economy: evidence
from a seasonal cointegration analysis. Economic Research-Ekonomska
Istraživanja, 28(1), pp.717-737.
Gibbs, D. and O’Neill, K., 2015. Building a green economy? Sustainability transitions in the UK
building sector. Geoforum.59. pp.133-141.
Janssens-Maenhout, G. and et.al., 2015. HTAP_v2. 2: a mosaic of regional and global emission
grid maps for 2008 and 2010 to study hemispheric transport of air
pollution. Atmospheric Chemistry and Physics.15(19). pp.11411-11432.
Martin, R. and et.al., 2016. Spatially rebalancing the UK economy: towards a new policy
model?. Regional Studies.50(2).pp.342-357.
Salemdeeb, R., Al-Tabbaa, A. and Reynolds, C., 2016. The UK waste input–output table: linking
waste generation to the UK economy. Waste Management & Research, 34(10), pp.1089-
1094.
Siddiqui, K., 2019. Government Debts and Fiscal Deficits in the UK: A Critical Review. World
Review of Political Economy, 10(1), pp.40-68.
Wadsworth, J., 2017. Immigration and the UK Economy. Paper EA039. The Centre for
Economic Performance at the London School of Economics and Political Science,
London.< http://cep. lse. ac. uk/pubs/download/ea039. pdf.
Capello, R., 2015.Regional economics. Routledge.
Chubb, J. and Watermeyer, R., 2017. Artifice or integrity in the marketization of research
impact? Investigating the moral economy of (pathways to) impact statements within
research funding proposals in the UK and Australia. Studies in Higher Education,
42(12). pp.2360-23
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