Analyzing the Effects of Inflation on the Tourism Industry in the UK

This report examines the concept of inflation and its effects on the tourism industry, particularly in the UK. It identifies both positive and negative impacts, noting that while some businesses benefit from travelers who must travel regardless of cost, many SMEs suffer due to decreased consumer spending and cancelled travel plans. The report highlights the inverse relationship between inflation and GDP growth, emphasizing the challenges faced by tourism-related SMEs. It also explores strategies for mitigating the negative effects of inflation, such as cost-cutting measures and employee communication. The report concludes by emphasizing the importance of adapting business strategies to navigate inflationary periods in the tourism sector. Desklib provides access to this and other solved assignments for students.

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Contents
INTRODUCTION...........................................................................................................................3
Concept of inflation.....................................................................................................................3
List of the events that can lead to inflation..................................................................................3
Aim and objective of research.....................................................................................................3
MAIN BODY...................................................................................................................................4
Quantitive research..........................................................................................................................4
Impact of inflation on SMEs........................................................................................................4
Qualitative research.........................................................................................................................5
Positive and negative impacts of inflation on tourism industry...................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7
Online...............................................................................................................................................7
Appendix..........................................................................................................................................9

INTRODUCTION
Concept of inflation
The rate of increasing in the prices of goods and services within an economy for a
particular period of time is called inflation (Joseph and et. al., 2021). There are many reasons for
inflation such as when demand is more then supply then prices of goods are increased to control
the demand. Customers are price sensitive, when they notice that prices are increasing then they
control the consumption of that product. Second reason for inflation is that if the cost of
manufacturing increases like increase in cost of raw material, increase in wages of labours and
many others then also companies increase the prices of their final goods to cover all cost and
include profit margin.
List of the events that can lead to inflation
During inflation, the purchasing power of customers decline because they stop
purchasing normal goods and they start investing in healthcare facilities as well as they start
saving their money for future use. During inflation, citizens only focus to spend their earnings on
essential goods (Forbes, Kirkham and Theodoridis, 2021). There are various events that can lead
to inflation such as global events. When other countries increases the prices of their raw material
or enhances the import or export charges then obviously this will impact to other countries also.
For example, a UK based company importing it's raw material from Russia. In case Russia
increases the prices of their raw material then UK based company have to purchase that material
in high prices. Hence, the company have to increase the prices of their final goods to cover the
cost plus profit margin.
On the other hand, interest rate also played a important role in leading inflation. When
interest rate is low then people increase their borrowings from banks and spend in market for
business purpose (Caporale, Gil‐Alana and Trani, 2022). When more circulation of money takes
place in market than government increases the prices of the goods and products to control the
circulation of money.
Aim and objective of research
Aim- To identify the positive and negative impacts of inflation on tourism industry and
implement the solutions to mit8gate the negative impacts.
Objectives-

 To determine 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
Quantitive research
Impact of inflation on SMEs
SME are the companies which are having small number of employees as well as limited
revenue. Such companies are not too popular among local customers and due to this they are
having limited number of customer base. Inflation has vast impact on the growth of SME in
tourism industry (Jephcote, Medland and Lygo-Baker, 2021). There are various tourism agents
and companies which are working at small level and when inflation stuck the industry then these
companies are impacted badly. UK is facing high inflation rate which is 9.4% as fuel prices rise
(Butler, 2022). According to a report, 1,650 travelling businesses indicates that they have seen a
huge fall of profit due to inflation (Arena, 2022). Their customers switch to other brand and most
of the customers cancel their travelling plans and wait for low prices of holiday packages.
Every three of five travellers states that they only suppose to travel for business purpose
during inflation and if the travelling purpose is adventurous or enjoying holidays then they
switch their destination for low prices or even cancel the plan during inflation.

Interpretation- From the above diagram, it is analysed that GDP growth of a UK has inverse
relationship with inflation. Hence, the diagram shows that when inflation goes down than GDP
growth of UK get enhanced and when inflation is increasing then GDP growth of UK shows
downfall. Hence, SMEs which always played a important role in GDP growth get impacted by
raise in inflation rate.
Qualitative research
Positive and negative impacts of inflation on tourism industry
As per the point of view of Patrick Whyte (2021) tourism industry is one of the largest
growing industry in the world. Inflation impacted both positive as well as negative impact on
tourism industry. Some customers of tourism industry are those for which travelling is business
and they earn because they travel (Whyte, 2021). Such examples are social media influencers,
adventurers, bloggers and many others. They prefer to travel at any cost whether they have to
pay little extra because travelling is the part of their job. Hence, when inflation occur few of the
travellers and those people who have to attend business meetings choose to travel with high
prices of their flights and accommodation services (Jaravel, 2021). Therefore, this is the better
opportunity for tourism industry to earn more by charging high prices from these customers for
whom travelling is important.
According to the Marius Mayer and Luisa Vogt (2016) there are various negative impacts
of inflation on tourism industry. Due to inflation the prices of the goods and services get
increased and customers are price sensitive which means wherever they see hike in prices they
switch their demand (Mayer and Vogt, 2016). Same happen in tourism industry, when the
inflation rate increases then the prices of holiday packages also increases. Most of the customers
cancel their plans and avoid to use expensive tourism facilities to save money for buying
essential goods. Hence, this shows that most customers purchasing power decreases when
inflation get increased. Customers avoid to take tourism facilities which reflects that tourism
businesses are not having good profit earnings from their operational activities. Even few of the
companies especially SME in tourism industry have to shut down their business and exit the
market. This is also analysed that unemployment rate also increases when inflation stuck the
economy (Daniel and et. al., 2021). When inflation rate increases then most of the companies
terminate few of the employees from their organisation to cut down the cost which help them to

survive in inflation period. This termination of employees take place with those workers which
are moderate or low performers of the organisation (Dinçer and et. al., 2022). This termination of
employees occur unemployment rate and further ruin the brand image of the tourism companies.
CONCLUSION
From the above information it is concluded that inflation is the general term which is
used for raise in the prices of goods and services within an economy. The inflation is measured
in percentage form. Most of the customers are price sensitive which means they can switch the
brand or even withdraw their demand if they found they have to pay additional charges for their
needs and wants. In context of tourism industry then it is one of the biggest industry at global
level and inflation have huge impact both positive as well as negative on this industry. Hays
Travels which is one of the most popular name in tourism industry get negative impact by
inflation. They have to see the decline in their revenue sheet because their most of the customers
are not ready to pay additional charges during inflation. On the other hand, some of the
companies such as Jet2holidays are also seeing inflation situation in positive manner. They
mainly target those customers for whom travelling is important because it is the part of their
earnings. Hence, they target social media influencers, adventurous and many others who have to
travel from one place to another even by purchasing tickets and holiday packages at high prices.
For such companies inflation is opportunity to earn more from their customers.
This is the fact that inflation can harm the growth of tourism industry. There are various
strategies and recommendation which can be adopted by tourism companies to mitigate the risk
of their companies which they can face during inflation. One of the best strategy is to cut down
the cost as much as possible to offer lower prices than the competitors. The companies such as
Hays Travels can cut down their cost by scanning their business environment and analyse their
most productive and non- productive activities. They can mitigate their non-productive activities
to cut down the cost. On the other hand, few of the tourism companies also adopt the strategy
that they will communicate with their employees and make them influence to work in little lower
salary as compared to non-inflation period. The company have to gain their trust by promising
the workers that when situation comes under control then they will pay all the part of salaries of
their workers which is now cutting do lower the cost.

REFERENCES
Books and Journals:
Athari, S.A. and et. al., 2021. The (Un) sticky role of exchange and inflation rate in tourism
development: insight from the low and high political risk destinations. Current Issues in
Tourism, 24(12), pp.1670-1685.
Caporale, G.M., Gil‐Alana, L.A. and Trani, T., 2022. On the persistence of UK inflation: A
long‐range dependence approach. International Journal of Finance & Economics, 27(1),
pp.439-454.
Daniel, S.U. and et. al., 2021. Relationship Between Inflation and Unemployment: Testing
Philips Curve Hypotheses and Investigating the Causes of Inflation and Unemployment
in Nigeria. Traektoriâ Nauki= Path of Science, 7(9), pp.1013-1027.
Dinçer, H. and et. al., 2022. Can Renewable Energy Investments Be a Solution to the Energy-
Sourced High Inflation Problem?. In Managing Inflation and Supply Chain Disruptions
in the Global Economy (pp. 220-238). IGI Global.
Forbes, K., Kirkham, L. and Theodoridis, K., 2021. A Trendy Approach to UK Inflation
Dynamics 1. The Manchester School, 89, pp.23-75.
Jaravel, X., 2021. Inflation inequality: Measurement, causes, and policy implications. Annual
Review of Economics, 13, pp.599-629.
Jephcote, C., Medland, E. and Lygo-Baker, S., 2021. Grade inflation versus grade improvement:
Are our students getting more intelligent?. Assessment & Evaluation in Higher
Education, 46(4), pp.547-571.
Joseph, A. and et. al., 2021. Forecasting uk inflation bottom up. International Journal of
Forecasting.
Lea, R., 2021. CPI inflation picks up further in June, increasing concerns over rising inflationary
pressures. Arbuthnot Banking Group, 19.
Online
Butler S., 2022. Everything is going up’: UK hospitality sector struggles as inflation soars
[Online] available through:
<https://www.theguardian.com/business/2022/jul/20/uk-hospitality-sector-struggles-as-inflation-
soars/>

Arena L., 2022. Rising inflation threatens SME travel revival, says report [Online] available
through:
<https://www.businesstravelnewseurope.com/Management/Rising-inflation-threatens-SME-
travel-revival/>
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/>
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/>

Appendix