MGBBT0FYP: Impact of Inflation on SMEs in the UK Tourism

This report examines the impact of inflation on Small and Medium Enterprises (SMEs) within the UK tourism industry. It begins by defining inflation and listing events that can lead to it, such as high demand exceeding supply and increased manufacturing costs. The research aims to analyze both the positive and negative impacts of inflation, noting the decline in consumer purchasing power and the shift towards saving rather than spending. Quantitative research reveals an inverse relationship between the UK's GDP growth and inflation, affecting SMEs' contributions to GDP. Qualitative research highlights that while some businesses benefit from travelers who must travel regardless of cost, most face challenges due to price-sensitive customers switching to cheaper alternatives. The report concludes by recommending cost-cutting strategies and adaptability to current trends to mitigate the negative impacts of inflation, suggesting that companies should prioritize employee retention during economic downturns. Desklib provides access to similar reports and study resources for students.

Foundation Year
Research Project
MGBBT0FYP

Table of Contents
INTRODUCTION...........................................................................................................................1
Concept of inflation.....................................................................................................................1
List of the events that can lead to inflation.................................................................................1
Aim and objective of research.....................................................................................................2
MAIN BODY ..................................................................................................................................2
Quantitative research.......................................................................................................................2
Impact of inflation on SMEs with the UK tourism industry.......................................................2
Qualitative research.........................................................................................................................3
Positive and negative impacts of inflation on tourism industry..................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................6
Appendix..........................................................................................................................................7

INTRODUCTION
Concept of inflation
The inflation is defined as the rate of increasing within the prices of the products or
services within the economy for a particular period of time. Th inflation can be occurred within
the economy due to several reasons such as when there is high demand of products or services
by the customers which is more than the supply. This can lead to the situation of the inflation
within the economy. The another reason of inflation can be as increase within the cost of
manufacturing can increase in the prices of raw material, which leads to increase is wages which
leads to increase in the prices of the products or services(Schmude, Karl, and Weber, 2020). The
companies concentrate of covering the overall cost and include profits margins in order to gain
competitive advantage.
List of the events that can lead to inflation
During the inflation period, it is identified that there is decline within the purchasing
power of customers as the people stop purchasing the normal products or services and start
investing in the other aspect such as healthcare facilities and they also have tendency to save
money for the future generations. It has been identified that inflation plays vital role in the
company which affects in the financial aspects for every business and market. During the
inflation, people focus on savings money rather than spending and also purchase only inessential
products or services. There are various different events which lead to inflation such as global
events. For example, if there is increase in the cost of the tourism services within the industry
can result in increase in the prices of the accommodation services of hotels. This results in high
inflation which reduces the spending power of customers. The land values is one of the major
reason for the inflation in tourism sector which result in generating more demand of land(Faraji
Molaei, 2018).
On the other hand, the interest rate also plays a vital role in leading inflation. It has been
identified that when the inflation rate is low which results in increase of the borrowing from
banks and they also spend in market for the purpose of conducting business. It is analysed that
when there is more circulation of money which results in the increase of prices of the products or
services by the government in order to control the circulation of money.
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Aim and objective of research
Aim- In order to examine the positive and negative impacts of inflation on tourism sector and
how to overcome with negative impacts.
Objectives-
 To analyse the positive and negative impacts of inflation in context of UK tourism
industry.
 To identify solutions to mitigate negative impacts of inflation on UK tourism industry.
MAIN BODY
Quantitative research
Impact of inflation on SMEs with the UK tourism industry
The SME are small- medium size enterprises which are having small number of
employees and there is limited revenue in such organisations. The small scale organisations have
the limited number of customer base because they are not too popular in the market. There is the
vast impact of inflation over the small scale enterprises in tourism sector. The various agents
which are affected in the tourism sector is highly impacted because of the inflation. It has been
identified that United Kingdom is facing high inflation rate which is 9.4 percent as there is rise in
the prices of fuel. According to the research, 1650 travelling business indicates that they have
figured out the huge decline in the profits margins because of inflation within the economy. It is
also identified that their customers switch to the other brand with low prices(Srivastava, and
et.al., 2021)
It has been identified that every three of five traveller states that they travel for the
purpose of the business during the inflation and if they wish for the adventurous purpose than the
people go for lower rates and can also lead to cancellation during inflation period.
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Interpretation- From the above graph it has been interpreted that there is inverse relationship of
the growth of GDP of UK with inflation. The diagram interprets that when there the inflation
goes downwards there is enhancement in the GDP growth of United Kingdom.. when the
inflation rate is increasing then GDP growth is United Kingdom is falling downwards. Hence,
SMEs which always played a important role in GDP growth get impacted by raise in inflation
rate(Penco, and et.al., 2019).
Qualitative research
Positive and negative impacts of inflation on tourism industry
According to the view point of Patrick Whyte (2021) , the tourism sector is considered as
one of the fastest growing sector in the world. The inflation has both the side affects on the
tourism industry. It is identified that some of the main customers of this industry are the people
who travel for their business purpose in order to earn money. The various example for such
customers are social media influencers, bloggers, adventurers. These type of customers prefer to
travel at any cost because its the part of their profession. At the time of the rise in the inflation
some of the few travellers wish to pay for the high prices because of the business meetings. This
tends to identify the better opportunity for the organisation within the tourism industry in order
to earn profits and have competitive advantage(Tu, and Zhang, 2020).
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According to the view point of Marius Mayer and Luisa Vogt (2016) there are various
negative impacts of inflation on the tourism sector. It has been identified that because of the
inflation the prices of the products or services increases and the customer behave like price
sensitive. This means that if the customer feels that the pricing are rising they tend to switch to
the other brand. This happens in the tourism sector as well, as it is analysed that when the
inflation rate is increased then there is increase is the packages of the holidays and
accommodation services which is provided by the hotels. As due to rise in the prices the most of
the people need to cancel their plan in order to save money for buying the essential products and
services. It has been identified that customers avoid to take the tourism facilities which impacts
in the earning of the business organisation. The some of the SME companies in tourism industry
have to close down with their business and exit with the market. It has also been identified that
as unemployment rate also increases when there is inflation within the economy. As due to the
increase in the inflation rate the most of the business organisation terminate employees from
their enterprise in order to cut down the cost which further assist them to survive within the
inflation period. The termination of employees leads to the unemployment which impacts in the
brand image of the company(Page, 2019).
CONCLUSION
From the above report it has been concluded that inflation is term which is defied as the
rise in the prices of the products or services within the economy. This is measured in the form of
percentage. It has been analysed that as most of the customers are price sensitive where if they
find the rise in the prices they switch to the other brand at lower prices. In order to satisfy their
needs and wants. In relation to the tourism sector which is considered as the biggest industry at a
global level and there is the both positive and negative impact of inflation over the tourism
industry. It is identified that one of the famous company Hays travel which is impacted by the
inflation. The company has to face decline in their revenues because the people were not ready to
pay the additional charges during the inflation. There were positive impact also over the
organisations where the company was able to target those proper who have the profession as
travelling and it was necessary for them to travel at any cost. The company was able to target
social media influencers at high prices in order to take a competitive advantage. For such
companies inflation is opportunity to earn more from their customers.
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It is identified that the inflation can harm the tourism sector in many ways. It is very
important for the company to have certain strategies which is recommended in order to overcome
with the challenges faced during inflation. It is recommended that the company can focus on
cutting down the cost as much as possible in order to offer the services at lower prices which can
help in having a competitive advantage. It is very important for the company to analyse its
environment and identify the current trend and needs and accordingly adept the changes so that
they can attract customers. During the inflation period as the companies can lower the wages
rather than terminating their employees. It is very important for the company to gain trusts of
employees.
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REFERENCES
Books and Journals
Faraji Molaei, A., 2018. A Systematic Analysis of Positive and Negative Effects of IRAN
Tourism Development Using a Future Study Approach. Social Studies in Tourism, 9(9),
p.0.
Page, S.J., 2019. The future of tourism: Post tourism?. In Tourism Management (pp. 455-491).
Routledge.
Penco, and et.al., 2019. Critical events in the tourism industry: Factors affecting the future
intention to take a cruise. International Journal of Contemporary Hospitality
Management.
Schmude, J., Karl, M. and Weber, F., 2020. Tourism and Terrorism: Economic impact of
terrorist attacks on the tourism industry. The example of the destination of Paris.
Zeitschrift für Wirtschaftsgeographie, 64(2), pp.88-102.
Srivastava, and et.al., 2021. Post-epidemic factors influencing customer's booking intent for a
hotel or leisure spot: an empirical study. Journal of Enterprise Information
Management.
Tu, J. and Zhang, D., 2020. Does tourism promote economic growth in Chinese ethnic minority
areas? A nonlinear perspective. Journal of Destination Marketing & Management, 18,
p.100473.
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Appendix
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