Economics for Business: UK Consumer Spending Report & Analysis

This report provides an analysis of consumer spending in the UK, examining the impact of the COVID-19 pandemic on retail spending patterns. The study investigates the interplay of supply and demand, with a focus on factors such as government intervention, elasticity, and income effects. It delves into the various economic policies implemented by the UK government, including poverty programs, furlough schemes, and direct money transfers, to stabilize the economy and encourage consumer spending. The report explores the shifts in consumer behavior, including changes in demand for essential and non-essential goods, and discusses how government policies aim to influence consumer spending and mitigate the economic challenges brought about by the pandemic. It concludes by summarizing the key findings and their implications for the UK economy.

Economics for business
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Executive Summary
UK is a free market economy but with government intervention at the point whenever it
is needed in order to maintain public welfare. UK was facing economic uncertainty from a quite
while due to many happenings like Brexit but coronavirus pandemic scare provided a thrust to
that economic uncertainty. Many restriction were put on people during lock-down which resulted
in changes in many trends and habits. This report contains two objectives – to ascertain factors
that have an effect over consumer spending and analyse their impact and other, to list down
various economic policies applied by UK government to restore economy and help consumer
spending return to normal.
In first section, market forces of demand and supply have been discussed with focus on
the determinants of demands that have an effect over consumer spending. Factors like
government intervention, elasticity, income effect, etc. have been considered. In second section,
various policies and steps taken by government to deal with economic uncertainty and easing
pressure off people have been discussed. Various schemes like poverty programmes, furlough
schemes have been discussed.
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Table of Contents
Executive Summary.........................................................................................................................2
INTRODUCTION...........................................................................................................................4
Task 1...............................................................................................................................................4
Factors determining shifts in consumer retail spending in UK due to Covid-19...................4
TASK 2............................................................................................................................................9
Main UK government and economic policies to influence consumer spending....................9
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12
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INTRODUCTION
Consumer spending refers to the concept of to total monetary power spend by individuals
and households on ultimate goods and services in an economy while, on the other hand, retail
sales refers to a process of tracking the demand from consumer's end for finished products and it
is recorded over a period of time. This concept of consumer goods and its spending forms the
standing pillar for an economy. Any intense fluctuation in pattern of consumer spending can
have a significant impact on whole economic situation of hosting country. This report
concentrates on discussion of impact that COVID 19 has on economic condition of all businesses
all over the world. This pandemic has caused a serious decline in levels of consumer spending in
United Kingdoms and this also forms the base for all the discussion held in this report. Impacts
on both side, positive and negative impacts on consumer demand pattern are discussed with the
help of demand and supply analysis. Furthermore, there is discussion in context of various steps
that are taken by governmental authorities of UK to persuade and influence consumers to make
more spending. This induction in consumer behaviour is made, so that economic conditions can
be made stabilised.
Task 1
Factors determining shifts in consumer retail spending in UK due to Covid-19
UK has maintained a open market economy with a socialistic orientation i.e. the
government allows free interaction of market forces in production and demand in the normal
condition but intervenes whenever it is needed to, for stabilising the economy or promoting
public welfare.
Demand and supply function
Economics is based on utilising scarce resources available and aims to develop optimum
sources of utilisation of those resources. In near perfect competition market economy like UK,
there are multiple buyers and sellers. Producers try to develop and supply products with the
limited resources, with an edge over their competitors. On the other hand, consumers have
variety of options to choose from. While choosing one product, they foregone the benefit, its
alternatives could have provided them, this is known as concept of opportunity cost in economics
(ARUL BEC lectures, PowerPoint slides, & videos: ARUL & Young, 2020) .
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Law of demand
It is based on two factors, quantity demanded and price. Quantity demanded is amount of
goods and services that a consumer is willing to purchase, backed by purchasing power, at a
specific price. Law of demand says that in ceteris paribus conditions (i.e. all other factors remain
constant), quantity demanded and price shows a negative relationship. It means that as prices of
goods and services goes up, quantity demanded goes down and vice versa. Therefore, demand
curve characterises a downward slope (Law of demand).
Law of supply
It is based on quantity supplied and price. Quantity supplied is amount of goods and
services that a supplier is willing to supply at a specific price. Law of demand says that, when
other things are constant, price and quantity supplied show a positive relationship i.e. at higher
prices available, producers are willing to sell more and more goods and services. Therefore,
supply curves has a upward slope (Law of supply).
Equilibrium of demand-supply and prices
Under free market conditions, demand and supply forces interact and create a theoretical
equilibrium in the market which is the condition when it is assumed that at a certain price level,
quantity demanded is equivalent to quantity supplied. Such price is known as equilibrium price
and quantity is called equilibrium quantity. Whenever there is a change in the equilibrium
quantity or price, demand and supply curve see a shift. For example, shift in demand curve
because of increase in demand will result in increase in both equilibrium price and quantity and a
shift in supply curve because of increase in supply, will result in decrease in equilibrium price
and quantity. Usually in free market, both the curves show a simultaneous shift. When they show
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a shift in same direction, usually resulting change in quantity can be predicted but prices change
cannot be predicted. On the other hand, when they show a shift in different directions, change in
price can be predicted but change in quantity cannot be. Which way the change will go, depends
upon the curve which shows a greater shift (Macroeconomics, Fourth Edition by Krugman &
Wells, 2017).
Below mentioned are various demand oriented factors that have shown a shift in
consumer retail spending in UK due to unstable market and economic conditions because of
lock-down induced due to Coronavirus spread:
Local demand factors
UK is a open market with free interactions of market forces in general conditions. There
is an upper limit on every commodity, post which the consumers are not ready to spend on the
product or services. Due to coronavirus scare, this limit saw a decreasing trend along with a
reduced demand, because people were locked inside their homes and employments were uneven.
Supply side also saw a downward shift because business units were not able to produce at their
maximum capacities and logistics were disrupted. This lead to a comparatively flattened supply
curve. But one segment of market saw a surge in demand which is online market. During lock-
down, digital shopping and spending saw a tremendous increase. People were so panicked and
demanded products like face masks, hand sanitisers, toilet papers, groceries, etc. in such a
massive number that it was equivalent to hoarding. Many supermarkets had to apply capping on
maximum purchase limit. (U.K. Grocers Limit Items to Avert a New Wave of Stockpiling,
2020).
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Complementary or substitute goods
Complementary goods are those goods whose demand ofteUK consumer spending
approaches levels last seen before coronavirus, 2020n complements each other like pen and
ink while substitute goods are those goods whose demand are often mutually exclusive i.e. they
are alternative for each other. For example, smartphones from Apple and Samsung (Substitutes
and complements). During pandemic period, consumer spending graphs in UK saw huge shifts.
Many trends were different from regular such as in digital market, demand of substitute goods
were so much in absolute number that it looks like complementary demand rather than
competitive demand. It also showed complementary nature demand of essential products (UK
consumer spending approaches levels last seen before coronavirus, 2020). Groceries saw
trends of stockpiling in essentials while complementary goods in non-essential products didn't
see much change than usual demand.
Elasticity
Price elasticity of demand refers to relationship of change in quantity demanded by the
customers in relation to the change in price. It is a mathematical term and is expressed in
percentage terms. Slope of elasticity is different from demand curve. Other than price elasticity
of demand, there is income elasticity of demand and cross elasticity of demand. Income elasticity
checks the relationship of demand with income of the customer while cross-elasticity check the
demand of complementary and substitute goods. Substitute goods show a positive cross-elasticity
while complementary goods show a negative cross-elasticity in comparison with change in price.
Essentials are usually inelastic in nature. During pandemic period, shopping of essentials
saw a tremendous surge. People were buying goods in lots of numbers in panic which made so
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many new goods having inelastic demand. Stockpiling of non-essentials like arts and craft
activities, self care items, home décor, kids' educational activities, video games, etc. also saw
surge in number, which were earlier called luxury and had inelastic demand. But, recent trends
showed elasticity in their demands as well (Video games top list of pocket money spending
in lockdown, 2020).
Government intervention
UK government does not get involved in the market operations but does apply price
controls wherever and whenever needed. It applies price control in the form of price ceiling and
floor price. Ceiling prices leads to inefficiencies like wasted resources, inefficiently low quality,
etc. floor prices leads to inefficiencies like inefficiently high quality, inefficient allocation of
sales among sellers, etc. but still they are needed to maintain public welfare. During pandemic
period, government initially had to put restriction on people to safeguard their lives but then
opened economy with a push towards employment saving. It ordered some restrictions and then
allowed people to work out so that market forces of demand and supply can back to normal.
Income effect and shift in employment
During pandemic period, people had question mark over their employment status and
many lost their jobs as well. Many were pushed to poverty. All this forced people to increase
their savings and decrease their retail spending especially of luxury and non-essential products.
Saving habits saw an all time high according to data from Office for National Statistics
(Coronavirus: People saving more but get little in return, 2020).
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TASK 2
Main UK government and economic policies to influence consumer spending
As per the discussions made in the above part of the report, UK is an economy which is
characterised by social orientation and thus, in situations of inflation and recessions, the main
role that is taken up to improve situations are with the governmental authorities. Steps and
policies formulated by governmental authorities have an intense impact on whole economic and
its spending patterns. Various impacts relate to segments like taxation structure, market
operations, bank rates, etc. Due to pandemic time of coronavirus, governmental authorities have
adopted for options like direct money transfers and this will impact the economic needs to
stimuli the consumer spending pattern back to normal. There are various policies formulated by
governmental authorities of UK, that are directed towards normalising the business and
consumer spending:
Poverty programs
These programs and policies are directed towards the main goal of eliminating poverty
from UK. The main issues is confronted by the country in view of impact that coronavirus had
on economic situation of country. These effects relates to bringing more people under the stress
of poverty. The main reason of more individuals coming under poverty is due to their loosing
their jobs and also business opportunity. Coronavirus has almost put a stop of all economic
conditions and because of this reason, there is very slow flow of money in the economy.
According to estimation made by Office for Budget Responsibility (OBR), unemployment levels
can take up a hike up to 9.1% in 2020 (Coronavirus will cause child poverty to soar. So what
can we do about it?, 2020). To prevent the situation to be more worsened in coming
future, government is focusing on developing universal credit scheme. Various other
policies relates to increasing working tax credits and also increasing the benefits that are
planned for children, these all benefits are planned to remove child poverty. For this
program, government has set out funds of billions of pounds. This fund is related with
saving of number of jobs and saving these employees from going under the graph of
poverty. Furthermore, through adoption of several welfare policies, government is trying
to bring people up from the graph of poverty. To ensure welfare safety of those who are
under the poverty line, adequate medical facilities is being provided to them. Although
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government is continuously doing its bits but there are growing demands of A Family
Stimulus that is expected to bring out 500,000 children and 200, 000 adults out of poverty
and boost GDP by £19bn or 0.6% of GDP in 2021-22 (Stimulus package for UK's
poorest families vital, report says, 2020).
Government transfers and subsidies
A transfer of a total of £16bn to the administration of countries like Scotland,
Wales and Northern Ireland is directed towards achieving the bailing out the economies
of hosting country. Due to coronavirus, the main stress has come on the business segment
of the country and to make business recover from the stress of economic constraints in
this pandemic time, a additional fund of £1.1bn has been announced and allocated to
business councils. This allocation is directed towards providing support to businesses and
making them recover the stress of slow down of economy. An additional fund of £3000 is
decided to be made available for those small business set ups that were forced to be
closed down due to the reason of national and local restrictions to prevent spread of
coronavirus in commodity. There is an additional announcement relating to relief in
taxation amount of VAT, business rate reliefs, loans, tax deferrals and support from
individuals (National restrictions: financial support for jobs and businesses, 2020). this
relief is equal to an amount of £200 bn.
Stimulus packages
These packages includes all the steps and policies formulated by UK government
that will be helpful in pushing the demand to new levels in the economy. To illustrate,
government has announced a state loan worth an amount of £330bn. This fund is directed
towards achieving the support for businesses struggling to deal with the problems that has
been confronted by the business sector due to economic slow down caused by pandemic
time. An additional fund of £20bn has been announced with the name of financial
handouts along with this fund (Rishi Sunak promises £350bn emergency rescue package
for business, 2020). Government has announced that there will be a break on business
rates for a time span of 1 year. And it has also pledged to provide a subsidy of £25000,
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this is directed towards assisting those retailers and pubs, that have been struggling to
make through this catastrophe.
Industry specific measures
This program is formulated to announce few specified packages in order to being
some sort of support for industries and employees working in these places. To illustrate,
UK government has announced a furlough scheme which is directed towards prevention
of mass redundancies. This policy provides subsidies for wages for all those employees
who were forced to leave their workplaces and this was due to the reason, that either their
workplaces were closed or was having very low level of business opportunities.
According to this scheme, a certain part or ratio of defined wage or salary is paid by the
governmental authorities and rest had to be borne by the employer himself. This policy is
aimed at providing a middle way, so that employees do not loose their jobs and employer
as well is able to make through the tough time (Covid: How does the extended furlough
scheme work?, 2020).
CONCLUSION
In accordance of above report, it can be elucidated that consumer spending is
basically the reflection of what is the buying behaviour of consumers in an economy.
There are various considerations in an economic set up that determines the pattern of
consumer spending and they are related to demand pattern, supply power, pricing
schemes of business, income level of ultimate consumers, etc. Furthermore, these factors
are determined by interaction between market forces and government puts there
intervention only in the case when it believes that the economy is in situation of
instability. The main reason behind all these challenges and issues is the scarcity of
resources and the responsibility to satisfy needs and wants of all consumers, producers
and government top make use of these resources in an efficient manner.
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REFERENCES
Books and Journals
Macroeconomics, Fourth Edition by Krugman & Wells, 2017
ARUL BEC lectures, PowerPoint slides, & videos: ARUL & Young, 2020.
Online
Coronavirus will cause child poverty to soar. So what can we do about it?. 2020. [Online].
Available through:< https://www.theguardian.com/society/2020/apr/15/coronavirus-
child-poverty-politicians-parents>
Coronavirus: People saving more but get little in return. 2020. [Online]. Available through:<
https://www.bbc.com/news/business-53234128>
Coronavirus: What are the rules for face masks or face coverings?. 2020. [Online]. Available
through:< https://www.bbc.com/news/health-51205344 >
Covid: How does the extended furlough scheme work?. 2020. [Online]. Available through:<
https://www.bbc.com/news/explainers-52135342>
Law of demand. [Online]. Available through:
<https://www.investopedia.com/terms/l/lawofdemand.asp>
Law of Supply. [Online]. Available through:
<https://www.investopedia.com/terms/l/lawofsupply.asp>
NATIONAL RESTRICTIONS: FINANCIAL SUPPORT FOR JOBS AND BUSINESSES. 2020.
[Online. Available through:]
<https://assets.publishing.service.gov.uk/government/uploads/system/uploads/
attachment_data/file/932977/
ECONOMIC_SUPPORT_FACTSHEET_5_November.pdf>
Rishi Sunak promises £350bn emergency rescue package for business. 2020. [Online]. Available
through:< https://www.ft.com/content/088b9ca6-6875-11ea-800d-da70cff6e4d3>
Stimulus package for UK's poorest families vital, report says. 2020. [Online]. Available
through:< https://www.theguardian.com/society/2020/oct/26/stimulus-package-for-uks-
poorest-families-vital-report-says>
Substitutes and complements. [Online]. Available through:
<https://www.tutor2u.net/economics/reference/substitutes-and-complements>
U.K. Grocers limit items to avert a new wave of stockpiling. 2020. [Online]. Available
through:<https://www.bloombergquint.com/onweb/grocers-limit-items-raising-fears-of-
new-u-k-hoarding-crisis>
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UK consumer spending approaches levels last seen before coronavirus. 2020. [Online].
Available through:< https://www.theguardian.com/business/2020/aug/11/uk-consumer-
spending-approaches-levels-last-seen-before-coronavirus>
Video games top list of pocket money spending in lockdown. 2020. [Online]. Available through:<
https://www.ft.com/content/50590721-baec-4440-a9e8-5f1cfa2234a2>
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