BABS - University of Suffolk: Evaluating the Business Environment

This report provides a comprehensive analysis of the contemporary business environment in the UK, focusing on the significant impacts of the COVID-19 pandemic and Brexit. It details the economic consequences of COVID-19, including the decline in GDP, increased unemployment, and sectoral losses, particularly in travel and tourism. The report then examines the UK government's major economic responses, such as tax and spending measures, loan schemes for businesses, and job support programs, along with their implications. Furthermore, it analyzes the Bank of England's responses, including interest rate cuts and lending support, and their effects on the UK economy. Finally, the report discusses the likely impacts of Brexit on the UK's economy and provides recommendations for navigating these challenges. Desklib offers more resources like this, including past papers and solved assignments, to aid students in their studies.

Contemporary Business
Environment

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Explain the main economic impact of COVID-19 on the UK’s economy.............................1
TASK 2............................................................................................................................................3
What are the major economic response of the UK’s government and their economic
implications............................................................................................................................3
TASK 3............................................................................................................................................5
Analyse the major responses of the Bank of England and their implications to the UK’s
economy.................................................................................................................................5
TASK 4............................................................................................................................................7
What are the likely impacts of Brexit on the UK’s economy.................................................7
Recommendations............................................................................................................................8
CONCLUSION................................................................................................................................9
References:.....................................................................................................................................10
Online...................................................................................................................................10

INTRODUCTION
In the contemporary business environment, the organisations are operating into the highly
competitive business environment. Also, there is huge decline in the business profits with the
emergence of global pandemic Covid-19. The pandemic has lead the businesses to complete
shutdown which has caused the economic crisis for the business environment. The diseases have
lowered the productivity of several business sectors due to which overall GDP of the world is
declined badly. Due to the Covid-19, many business organisations are facing the issue of losses
and some are struggling badly for survival. Businesses like travel and tourism has faced the huge
losses due to the complete ban on travelling. The present report will discuss about the main
impact of COVID-19 on the UK's economy and the UK's government economic response and its
economic implications. Further, the major responses of the Bank of England and their
consequence on the UK's economy is discussed. At last, likely impacts of the Brexit on the UK's
economy is discussed in the report.
TASK 1
Explain the main economic impact of COVID-19 on the UK’s economy
The COVID-19 is the major infectious disease caused by the spread of virus named as
Corona Virus. The disease is spreading all over the world in fast speed causing huge amount of
death due to which UK government announced a complete lock-down in UK and other countries
of the world overnight. This has caused a major disruption to the UK's economy because it has
adversely effected the industries that contribute majorly to the UK's economy such as travel and
tourism, financial markets, employment and many other industries and shipping. After analysing
the monthly growth and development of the production, service and construction sector of the
business in the UK economy, it was highlighted that global pandemic COVID-19 has caused
some of the main impacts on the UK's economy.
According to the, (Coronavirus: Economic Impact, 2021), The COVID-19 has triggered
unprecedented economic shock to the UK's economy. The GDP of UK declined by 9.8% in
2020, because in first lock-down in April 2020 the GDP dropped by 25%.
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According to the, (Impact of Covid-19 on the UK labour market: The case for a place-based
recovery, 2021), The labour market of the UK also faced the high pressure and is still under the
pressure due the COVID-19. By January, 2021 the unemployment in UK has been increased by
5% and also in April 2020, 31% eligible jobs of UK were downsized. According to the
Cambridge Econometric analysis, the gross value added has also fell by the 9.4% i.e. Euro 164
billion in 2020.
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Illustr
ation 2: Comparison of job recoveries following previous crises, 2021
Illustration 1: Economic impact to date, 2021.

In May 2020, during the lock-down week the GDP was lowered by the 30% as compared to the
month of February 2020. According to the office of National statistics in the April 2020, 23%
businesses were temporarily closed and trading was paused and other 60% which were trading
faced the huge fall in the revenue. As per the report of McKinsey, UK GDP shrink by 9% as the
impact of COVID-19.
The COVID-19 restrictions over the service, manufacturing and construction has affected
the supply and demand of the labour and also the labours were not fully utilized. In service
sector, the profits in December 2020 was 6.9% below than February 2020 (The potential Long
term impact of Covid-19, 2020). The six service industries of the UK have the output of their
work and resources utilized below 50 % of their February 2020 level and seemed as the weakest
performers in the COVID-19 situation such as air transport, travel agents, event management etc.
The accommodation and food and beverage service industry of the UK has faced the fall of the
25.2% in December 2020 and 44.5% in November 2020.
According to the office of National statistics, the public sector organisations has reflected
positive sign in the form of increase of the net debt by £2,004 billion in July 2020 (Covid-19
drives UK national debt to £2tn for first time, 2021). There was also reduction in the demand of
the British Petroleum which has declined the price of the petroleum by 17% and globally up to
0.5%. The global pandemic has also impacted the education system which is indirectly impacting
the overall UK's economy by increasing the chances of unemployment in future.
According to the, (Coronavirus: Economic Impact, 2021), The office for Budget responsibility
(OBR) and other economists forecasted that there will growth of 5.5% to 6.5% in GDP in 2021.
TASK 2
What are the major economic response of the UK’s government and their economic implications
The global pandemic COVID-19 has majorly impacted the UK's economy. The cases of
COVID-19 in UK were constantly increasing and with the reopening of UK after the lock-down
the scenario became worse with the growing number of cases. The government of UK played a
major role in COVID-19 as the UK government has exhibited the major responses for the
pandemic through its actions (Brewer and Gardiner, 2020). In light of the growing number of
Covid cases, the UK government announced the national lock-down for all the industries other
than hospitals and medical industry. This complete shut-down of businesses overnight has led to
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the downfall in UK's economy as in 2020 the GDP was shrink by 9%. To support and protect the
UK's economy and GDP from long term damage, the UK’s government has taken some
measures as the major economic response for the COVID-19 economic impact. According to the,
(Policy responses to covid-19, 2021), these measures will help the business firms and households
and families. The key fiscal response of the UK’s government is discussed underneath:
 Tax and spending measures where taken to support the families and households such as
additional funding for the NHS, charities and public service organisations etc.
 The UK government also took measures to support the businesses of the UK such as paid
leaves for the sickness, property tax holidays, direct grant of loans for the small firms.
 The UK government has strengthen the social safety net to help the vulnerable people of
UK in which they increased the payments for the employees working at low
wages(Whitehead, Taylor-Robinson and Barr, 2021).
Some measures in response to COVID-19 taken by UK government are discussed below:
 The government of UK set up the three separate loan scheme to support businesses which
help them to access to credit. In assistance of the Bank of England the UK’s government
established the Coronavirus Business Interruption Loan Scheme- the scheme will support
SMEs by providing them loan to trade and for the survival for their business.
Coronavirus large Business Interruption Loan Scheme is another scheme by which the
big business organisations will be supported with 80% guarantee for loans. The third
scheme of loan is Bounce Bank loan scheme for the SMEs that carry 100 % guarantee for
the loan amount of up to £50,000 (Policy Responses to COVID-19, 2021).
 In July 2020, the UK government adopted the bundle of measures in relation to protect
the employment rate of the UK and also to reduce the unemployment occurred due to the
COVID-19. The bundle of measures was useful in protecting and creating the jobs for the
UK citizens which is also useful in economic recovery of UK's economy. These measures
include: providing firms £1,000 per lay-off employee retained at the end- January 2021,
for the long -term employment in UK paying the minimum wage of 25 hours per week
for the next six months to the young workers, a temporary decrement in the VAT rate for
hospitality, accommodation and real estate transaction tax etc. (Policy Responses to
COVID-19, 2021).
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 In September 2020, UK government announced a Job Support Scheme (JSS) for 6 months
in which the employers of the business organisation will pay the wages to the staff for
both the hours they worked and not worked. The government and employers both will
pay one-third of their equivalent income, up to £697.92 per month each. Under this
scheme, employees are required to mandatory work for at least 33% of their usual
working hours.
 The UK government has also extended the Self Employment Income Support Scheme for
the business those who were actively trading before COVID-19 but started facing issue in
demand and supply due to the COVID-19. Under this scheme, the initial lump sum
covering of 20 % of the three months’ profits for the time period of November to January
end with total of £ 1,875 will be granted to the employers (Policy Responses to COVID-
19, 2021).
 The UK government also launched the Job Retention Scheme in March 2020 which was
implemented on April 2020. Under this scheme, all the businesses whose operations are
been impacted during the period of COVID-19, due to which they have to lay-off
employees who are free to claim grant for the survival of the business and also to create
employment (Whitehead, Taylor-Robinson and Barr, 2021).
TASK 3
Analyse the major responses of the Bank of England and their implications to the UK’s economy
The Bank of England is the UK's central bank and has the mission of providing the
financial stability to the UK citizens. According to the, (Our response to coronavirus (Covid),
2021 Bank of England), In the situation of the Covid-19, the Bank of England has set the
package of measures as a response to COVID-19 in order to help the businesses, people at jobs
and helped in minimizing the long term damage of the Covid-19 on UK's economy. The bank
has worked with the HM government in order to reduce the adverse impact of the COVID-19
from the UK's economy. Some of the measures as the major response of the Bank of England to
the global pandemic and its implications on UK's economy are discussed below:
Cut- off the interest rate by 0.1%: The Bank of England on 19 March 2020 has taken an
initiative by cutting the interest rate to 0.1% which means cheap rate loans for the businesses and
households in UK (Our response to coronavirus (Covid), 2021 Bank of England). The Bank has
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also increased its holding of UK government and corporate bonds by £200 billion. On the special
meeting of 19 march 2020, the Monetary Policy Committee (MPC) of the Bank of England also
expanded the Team Funded Loan Scheme which is financed by the central bank reserve. In the
meeting the MPC also voted unanimously to reduce the bank rates by 25 base points that is by
0.1%. The extension of the TFSME will provide the SME the additional incentives over the
loans as the initial borrowing allowance has increased from 5% to 10%. In the meeting, MPC has
also suggested and supported in increasing the BoE's holdings of UK government bonds by £200
billion (Our response to coronavirus (Covid), 2021 Bank of England).
Assisted other private and public banks to expand lending: The Bank of England has reduced
the level of financial resources also called as capital which banks and building societies required
against the lending of UK businesses and households. Also, the Bank of England has allowed the
other banks, businesses and households to not to pay any net profit to their shareholders in year
2020. In response to Covid-19 impact, the policy to expand lending will support up to £190
billion of bank lending which is 13 times more than the earlier lending. In response to the
COVID-19 impact on the financial market and the businesses the PRA statement on deposit
takers is sufficient to accommodate the combined and simultaneous impact of the UK recessions
(Our response to coronavirus (Covid), 2021 Bank of England).
Supervisory and prudential policy measures: According to the (Bank of England announces
supervisory and prudential policy measures to address the challenges of Covid-19, 2021 Bank of
England), Bank of England has announced the statement to set measures in response to the
economic shock from the global pandemic. The Bank of England and Prudential Regulation
Authority (PRA) on March 2020 has announced some measures to provide ease to the firms and
FMIs to maintain their safety and soundness in the delivery of the critical functions that they
provide to the UK's economy. In this, the bank decided to cancel the annual cyclical scenario of
annual stress test and continued to help lenders. As per this policy measure, the FPC to decrease
the UK countercyclical buffer (CCyB) rate to 0%. Also with this, there were the amendments in
the biennial exploratory scenario timetable such as liquidity and climate risk.
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TASK 4
What are the likely impacts of Brexit on the UK’s economy
The Brexit is the separation of the UK from the European Union in 2016 (Pandzic, 2021). Brexit
has changed the relationship of UK with the European countries which has also impacted the
trade directly and in- directly.
Current impacts of the Brexit on the UK's economy
According to the (Economic impact of Brexit summary.pdf, 2018), There were some
immediate impact of the Brexit on the UK's economic growth. It is expected that after the
separation of UK and EU membership UK will likely to have long term impact on the economic
growth of the UK. As per the Office of National Statistics, the goods that were exported to the
EU nations were declined by the 40.7% and import by the 28.8%. This referendum resulted in
the pushing of the UK inflation to 1.7% in 2017 which led to the annual cost of £404 for the
British households. As per the Financial Times analysis of December 2017, after Brexit, the
national income of the British has been declined by the 0.6% and 1.3% this seemed to be the
biggest disadvantage for the UK's economic growth. Also, one day ahead of the Brexit the
British Pound dropped from $1.48 to $1.36 due to which prices of imports were increased. Brexit
also impacted the employment especially disrupted the young workers of UK. Employers where
facing hard times in recruiting the talented employees for their organisation as the pool of skills
were smaller after the Brexit (Berthou and et. al., 2020). The Brexit has impacted the financial
centre of the UK that is London as there is diminishing of the business investment between 2016
to 2019 (United Kingdom, Government and institution measures in response to COVID-
19,2020). Without a trade deal the UK organisations with EU they are the new tariff during the
trading with EU, which is threat for their supply chains and also has increased the cost of the
products and service which is the worst for the UK's economic conditions. The membership of
the EU has always contributed to the economic prosperity of the UK. Uncertainty, caused as the
outcome of the EU and UK referendum currently has started to weaken the economic growth of
the United Kingdom. In 2020, the GDP of the UK 3% smaller compared to GDP during the
membership with EU. Also currently in as the structural impact over the economy of UK are
highlighted in the form of lower technical progress, immigration and channels of capital. Also, in
recent year there is back drop in labour productivity which in turn drop in foreign direct
investment and also lowers the pool of skills.
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Future impact of Brexit on UK's economy
According to the (United Kingdom, Government and institution measures in response to
COVID-19, 2020), many economists have forecasted that agreement of the UK and EU is likely
to have the adverse impact on the British economy in the long term future of the UK. The UK
government has estimated that in upcoming15 years due to Brexit the UK's economic growth
will decline by 6.7%. It is also observed by the employers of the UK that there will shortage of 3
million skilled labours in UK labour market by 2030. The economist of the free trade project has
assumptions that Brexit is likely to bring the 7% growth in UK's economy. Also, the leaving of
EU from UK will increase the trade restrictions for the UK firms (Cubells and Latorre, 2021).
Brexit may also offer an opportunity to decrease the economic costs of the regulation for the
businesses. In the UK’s economy the flow of the foreign direct investment is low as compared to
the size of economy. Therefore, there is likely to have small impact of foreign direct investment
due to the EU on UK’s economic output. After the Brexit, the UK will tend to face the impose of
non- tariff trade barriers that is bad for the UK's economic growth as this will directly impact the
trade volumes of UK (Cubells and Latorre, 2021).
Recommendations
After analysing the above information here are some recommendations to the UK government
and banks that they must consider in order to cope up quickly with the situation and impacts of
the COVID-19. Some of the recommendations are discussed underneath:
 It is recommended to the UK’s government to more emphasis on the welfare schemes
such as Employment Support Scheme, Job retention scheme and amend these schemes by
adding some more beneficiary measures to reduce the impact unemployment for long
term.
 To effectively deal with the current Crisis of the COVID-19 and to boost the UK's
economy the government of UK is suggested to more focus on the industries and
businesses that has the space for growth and can provide the stability in the downfall UK
‘s economy
 In order to gain the positive impact of Brexit, the UK government is suggested to focus
on foreign investment as this is the easiest and useful source to gain capital for raising the
UK's economy. The foreign investment is the direct way to increase the UK's economy
and also to reduce the restriction over the free trade tariff.
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 It is recommended to the UK’s government to invest into health and medical sector in
order to reduce the number of cases and to make the plan of reopening successful for the
UK.
 The UK government is recommended to plan the recovery strategy and focus on
businesses that are at the edge of survival and provide them with loans at low interest rate
and also to plan the reworking at office by providing the social distancing rules.
CONCLUSION
It is concluded from the above information; COVID-19 has brought the adverse impact on
economy globally. UK's economy has been badly impacted from the effects of the COVID-19 as
the UK government has put lock-down nationally in order to reduce the spread of the disease.
The tourism and hospitality industry, contribute majorly in the UK's economy but they were
highly impacted by the COVID-19 as they remain shut down for long run. Also the actions and
measures taken by UK’s government in terms of tax and spending to support household and
vulnerable people tend to remain useful in reducing the impact of COVID-19. Hence, it is
concluded that Bank of England plays a major role in recovering the economies of the UK
through its wonderful schemes like TFSME (Term Funded Scheme with Additional Incentives
For SMEs) to support small and medium size enterprises. Thus, Brexit and COVID-19 together
has badly impacted the UK's economy and it will also impact in future.
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References:
Books and Journals
Altig, D and et. al., 2020. Economic uncertainty before and during the COVID-19
pandemic. Journal of Public Economics, 191, p.104274.
Anand, P., 2020. Economic policies for Covid-19. IZA-Institute of Labor Economics.
Bell, B., Codreanu, M. and Machin, S., 2020. What can previous recessions tell us about the
Covid-19 downturn?. Centre for Economic Performance, London School of
Economics and Political Science.
Berthou, A and et. al., 2020. Assessing the macroeconomic impact of Brexit through trade and
migration channels. Banco de Espana Ocassional Paper, (1911).
Brewer, M. and Gardiner, L., 2020. The initial impact of COVID-19 and policy responses on
household incomes. Oxford Review of Economic Policy, 36(Supplement_1),
pp.S187-S199.
Cubells, J.F. and Latorre, M.C., 2021. Brexit deal done! A detailed micro-and macroeconomic
analysis of its fallout. Economic Systems Research, 33(2), pp.171-196.
Flynn, D and et. al., 2020. COVID-19 pandemic in the United Kingdom. Health Policy and
Technology. 9(4). pp.673-691.
Pandzic, L., 2021. IMPACT OF BREXIT ON UK-EU TRADE RELATIONSHIP. Ecoforum
Journal, 10(1).
Sherif, M., 2020. The impact of Coronavirus (COVID-19) outbreak on faith-based investments:
An original analysis. Journal of Behavioral and Experimental Finance. 28.
p.100403.
Whitehead, M., Taylor-Robinson, D. and Barr, B., 2021. Poverty, health, and covid-19.
Online
Coronavirus and the impact on output in the UK economy: December 2020, (2020)
[Online].Available
through:<https://www.ons.gov.uk/economy/grossdomesticproductgdp/articles/
coronavirusandtheimpactonoutputintheukeconomy/december2020>
The Potential Long-term Impact of COVID-19, 2020, [Online].Available through
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[Online].Available through:<https://www.lancaster.ac.uk/work-foundation/news/blog/impact-of-
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