Foundation Year Research Project: Inflation & Tourism Industry Impact

This report examines the impact of inflation on the tourism industry, particularly focusing on Small and Medium Enterprises (SMEs) in the UK. It identifies both demand-pull and cost-push inflation as key drivers, noting how increased prices affect tourist behavior, holiday package costs, and overall revenue for tourism companies. The research uses quantitative data, such as inflation rates in the UK, to illustrate the economic effects. It also explores qualitative aspects, discussing the positive and negative consequences of inflation on the tourism sector, including potential job losses and shifts in travel patterns. The report concludes by suggesting strategies for tourism companies to mitigate the negative impacts of inflation, such as cost-cutting measures and reducing profit margins to attract tourists during periods of economic instability. The study references various sources to support its findings and provide a comprehensive overview of the topic.

Foundation Year
Research Project

Table of Contents
INTRODUCTION...........................................................................................................................3
Concept of research................................................................................................................3
Events that leads to inflation..................................................................................................3
Aims and objectives of research.............................................................................................3
MAIN BODY...................................................................................................................................4
Quantitative research.......................................................................................................................4
Impact of inflation on SME's.................................................................................................4
Qualitative research.........................................................................................................................5
Positive and negative impact of inflation on tourism industry...............................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7
Online...............................................................................................................................................7
Appendix..........................................................................................................................................8

INTRODUCTION
Concept of research
Inflation is rate of increase in price of goods or services in the economy and decline in
purchasing power for a particular time period. At the time of inflation money supply in the
market is increase, which cause high of prices from general (Asghar and Amjad, 2022) . There
are many causes of inflation in which demand- pull and cost-push is most common. Demand-pull
inflation means demand for some products and services will increase but the supply will not
increase, in this case price of the available products in the market will increase. Another cause is
cost-push inflation which means the cost of production is increase, these high prices will
indirectly shifted to final products which have to bear by the customers and because of this price
of some products will increase.
Events that leads to inflation
At the time of inflation purchasing power of customers will decrease and now individuals
start spending their money in essential and health related good (Ashoorioon, Rostami and
Firouzjaee, 2021) . Interest rate play important in inflation, when interest rate is low more people
will borrow money and supply of money is increase in market which means demand will also
increase and this will cause inflation but during inflation rate of interest is increase, so people
will borrow less money and supply of money in market is in control.
There are various events happening globally which leads to inflation. Every country is
part of import of export from other country because no single can able to produce all products
and services to fulfil demands of the people of country. For example when one country is
importing goods from another country and due to some reason that country will not able to
export than it will reduce the supply of goods and demand will still remain same and due to
which prices of goods and services will increase and cause inflation.
Aims and objectives of research
Aim- Evaluate the impact of inflation on tourism industry and its solutions, for reduce the
negative impacts, that can be implemented.
Objectives-
 Identify the positive and negative impacts of inflation in refer to tourism industry of UK.

 Determine the solutions to reduce the negative impacts of inflation in context to tourism
industry of UK.
MAIN BODY
Quantitative research
Impact of inflation on SME's
SME stands for small and medium enterprises. These enterprises are small with limited
amount of employees and revenue. SME can be both manufacturing and services, these
industries are not deal in wide ranges and have limited number of customers. Inflation has great
impact on SME of Tourism industry (Kisswani and Harraf, 2021) . When prices rises it not only
affect the customers, the wages of employees and price of raw material will also increase and
SME don't have that much of capital to paid the high prices. In UK tourism industry is affected
by inflation, as many small tourism companies are working. UK is facing the inflation rate of
9.9% due to this prices of fuel, oil and gases, food is increasing which affect the tourism industry
because the cost of tourists package will increase and this will cause reduce in number of
tourists.
At the time of inflation tourists will likely to choose the paces for holidays which are
cheaper and budget friendly (Rudd, 2022) . The business of tourism companies is all depend on
number of tourists are coming but earlier due to COVID and now inflation affect the tourism
business.

Interpretation- From the above diagram, it has been analysed that in UK inflation rate is
increased so much in 2022 in comparison to 2020. In July 2022 inflation rate in UK is 10.1%,
due to which GDP of the country will affect because when inflation is increasing then GDP rate
will decrease. After so many years inflation rate reach at this level in UK.
Qualitative research
Positive and negative impact of inflation on tourism industry.
As per view point of Marius Mayer and Luisa Vogt (2016). Tourism industry has both
positive and negative impacts of inflation (Mayer and Vogt, 2016) . Tourism is one of the biggest
industry which affect the part of people. There are many negative impacts of inflation on tourism
industry. At the time of prices of goods and services will increase due to which tourists will start
changing their plans for travelling. Price of holiday package will increase which is not in budget
of all tourists because of it many tourists cancel their plan or change the place for holidays, this
will affect the business of tourism companies because their income is all based on travellers.
Along with tourism industry economy of the country will affect because tourism develop lots of
revenue and foreign exchange reserve of the country will increase when tourists came from
another country. Unemployment is also the one of the negative factor, when due to inflation
tourism industry will not performing well then in this individuals engage in this industry will
start loosing their jobs. This mainly affect the SME's because these enterprises are not that much
developed which can handle the loss of inflation and know by people, so at the tome of inflation
these companies will not able to survive (Scarlett, 2021) . Along with tourism companies many
Illustr
ation 1: Inflation in UK

other industries is also affect which are related to the tourism industry like when tourists come
they do shopping, eat food, visit different places and spend money at the places which increase
the revenue of so many people but when tourists will come then revenue of all of the above
mentioned will affect.
As per view point of Patrick Whyte (2021). Inflation has many negative effects on
tourism industry but there are some positive effects also on tourism industry (Whyte, 2021) .
When prices are high at the time of inflation people change their for travelling but some
individual are their who's job is travelling, many people earn money through travelling at
different places like influencers, travel bloggers, adventures and some people who love travelling
(Shapiro, 2022) . All these people will travel at the time of inflation also and pay the high prices
for everything and become a source of income of tourism industries. Also there are some rich
businessmen who travel a lot for business purposes and inflation will not affect them. These type
of business will ready to pay high prices and tourism company take advantage from it and charge
higher prices and increase their profit margin.
CONCLUSION
From the above report it is concluded that at the time of inflation the prices of goods and
services are increasing and purchasing power of individual will decrease. Inflation will affect
many industries and in fact, whole economy is affected by the inflation. Their can be many
reasons for inflation mainly demand pull and cost push are the reasons for inflation. At the time
of inflation supply will decrease and demand for products and services will increase (Tasinato,
2021) . In refer to Tourism industry it is one of the biggest industry which affect which affect by
the inflation. During the time of inflation people avoid to travel because prices for all products
and services is increase. Many tourism companies which has negative impact from inflation like
Insight vacation is company of facing negative impact at the time of inflation because customers
are not ready to pay higher prices and revenue of the company will reduce. To deal with these
negative imapct companies adopted many strategies, the best is to cut the cost. It means that at
the time of inflation tourism companies should reduce their costs and also reduce the
unproductive activities of the business, this will save the money of the company for future and
help to survive at the time of inflation.
Another famous company in UK is Hays travel which also facing problem at the time of
inflation to deal with this company adopted the strategy in which company reduce the wages of

the employees and again enhance it when inflation period will over and again earnings of the
company will enhance. Also with this company also reduce its profit margin to attract the tourists
who travel at the time of inflation also, by this company will able to earn some amount of money
(Tien, 2021) . Along with negative impact inflation has some positive impacts also because some
people will travel at the time of inflation also whether they are the rich business men or people
who's job is travelling and even source of earning.

REFERENCES
Books and Journals
Asghar, N. and Amjad, M.A., 2022. ASYMMETRIC IMPACT OF ENERGY PRICES ON
TOURISM DEMAND IN PAKISTAN. Journal of Economics. 3(1). pp1-15.
Ashoorioon, A., Rostami, A. and Firouzjaee, J.T., 2021. Examining the end of inflation with
primordial black hole mass distribution and gravitational waves. Physical Review
D, 103(12). p123512.
Kisswani, K.M. and Harraf, A., 2021. Asymmetric impact of oil price shocks on tourism:
Evidence from selected MENA countries. In Economic Development in the MENA
Region (pp 45-63). Springer, Cham.
Rudd, J.B., 2022. Why do we think that inflation expectations matter for inflation?(And should
we?). Review of Keynesian Economics. 10(1). pp25-45.
Scarlett, H.G., 2021. Tourism recovery and the economic impact: A panel assessment. Research
in Globalization. 3. p100044.
Shapiro, A.H., 2022. How Much Do Supply and Demand Drive Inflation?. FRBSF Economic
Letter, 15.
Tasinato, G., 2021. Analytic approach to non-slow-roll inflation. Physical Review D. 103(2).
p023535.
Tien, N.H., 2021. Relationship between inflation and economic growth in Vietnam. Turkish
Journal of Computer and Mathematics Education (TURCOMAT). 12(14). pp5134-5139.
Online
Mayer M. and Vogt L., 2016. Economic effects of tourism and its influencing factors[Online]
available through:
<https://www.degruyter.com/document/doi/10.1515/tw-2016-0017/html?lang=en/>
Whyte P., 2021. UK inflation hits 3.2% - what does this mean for hospitality sector?[Online]
available through:
<https://www.hospitalityinsights.com/content/uk-inflation-hits-3-2-what-does-mean-for-
hospitality-sector/>

Appendix