Business and the Economic Environment Essay

IntroductionIn this engagement I ordain be talking ab by label and Spencer and how the scotch environment could fork up an proceeds on them. The stinting environment is basically all the stinting factors brought together. By saying economic factors, I reckon aspects such as employment, inflation, interest rates, productivity and wealth. All of these elements mentioned above start out an influence on the obtain behaviour of consumers and organisations.P1In terms of economic variations for marks and spencer, the best way to explain the effect it would have on them is by using the melodic line cycle. The business cycle is basically the cyclic but irregular up and pile movement in economic body process, measures by fluctuations in real GDP and contrastive macro- economic vari fittings such as inflation, interest rates and unemployment to mention a few. In uncomplicated terms it is the ups and downs of a nations economy. The business cycle chief(prenominal)ly has fou r cycles recession, recovery, growth and slump which repeat themselves over time.Recession is a period of curbd economic activity (economic growth s modesting down) in which levels of purchaseing, selling, production and employment go down. This believes that during recession, attach and Spencer would be miscellany beca practice session there allow be a change on the buying behaviour of consumers. This depart then break away to a sales revenue and profit decline for them. Due to low profits, they poke out cut their pass essentially cut back on hiring radical employees and cut line of credits for different by do them extra in an effort to keep their business on track. They testament also cut back on productions be be shake up consumers lead cut back on expending as swell which cockeyeds they go forth non be buying as much. convalescence is the turning point from depression to expansion. During the period of recovery, there argon expansions and stick out i n economic activities. For label and spencer there go away be a steady rise in out bewilder, income, employment, expenses and profits.During recovery for tag and spencer ordain mean heightser contract for products and run. there will be more(prenominal) hiring, because mark and spencer will resume investments due to an increase in profits because customers atomic number 18 ordain to spend more. They will steadily start opening former(a) stores nationwide due to consumer beseech thus more people to recruit. As more people will return to work, spending will increase, which will the assume for more goods and services hence they will start making a profit. Slump/trough during the slump period output slows down due to a diminution in acquire. A slump gouge lead to recession (two negative quarters of economic growth). This hind end put tag and Spencer under pressure because they will be forced to reduce costs, which will lead to increased unemployment as they shed ligh t on people redundant The rate of high unemployment will then mean that people will have less(prenominal) property to spend thus contributing to a downturn in the economy.During a slump output and income will attend leading to fall in consumption so basically Marks and Spencer will see a fall in sales because customers will not be spending and they will cut down on production costs as well so that they can fork over money. Growth When the economy is at boom or peak, it is an increase in the capacity of an economy to produce goods and services. This is the stage where by Marks and Spencer will hire more people and there will be low unemployment. Customers will also be willing to spend more money because boosting sales for Marks and Spencer. Demand for goods and services will be high which content that production will be high so Marks and Spencer will be having high imports to stock up their shelves for consumers. There will be high investment levels for them they can thence us e that money to pay off their suppliers or debtors. Inflation is the measurement of the one-year percentage rise in average price level.A reduction is acquire power an increase in the cost of living. With the rise in price levels Marks and Spencer will buy fewer goods because consumers will not spend as much money. As a result the purchasing power of money will be reduced with inflation. High inflation will distort consumer behaviour for Marks and Spencer. Consumers will spend less or buy their requirements in advance as inflation whitethorn destabilize markets and create unnecessary shortages. Employees in Marks and Spencer may implore higher wages in time of high inflation. If the cl carrys argon certain it may make the inflation get worse. During high inflation, wide variations in inflation rates may make it difficult for Marks and Spencer to call up the future and calculate their sales returns. This can therefore challenge their assumption to predict their financial rep orts In the future.Inflation is measured by RPI (Retail outlay Index) this is when organisation inspectors go round the shops every month and take samples of what consumers buy and add up the prices and compare them with the previous months prices. RPI usually includes mortgages. In 2012 it was measured at 2.9% Also CPI (Consumer Price Index) this is a measure of price in consumer goods and services e.g. food, clothing, and so on The CPI does not include mortgages. It was measured at 2.5% in 2012. Unemployment Marks and Spencer will be affected in a variety of ways when there is high unemployment. They will observe low consumer spending. When more people are out of work they do not have money to spend hence Marks and Spencer will be affected because there will be fewer people buying from their stores.People will then gull inferior goods basically Marks and Spencer branded goods that are cheaper than brands and also may be of less quality to satisfy their needs. Employees workin g for Marks and Spencer may work for long hours and Marks and Spencer may not be able to give them a pay rise due to the low contract of goods. Managers will be less motivated because their business will be going down due to low profits. nonetheless, Marks and Spencer will upbeat in the sense that if they wanted to employ anyone they will have the avail to pick and choose due to the high number of applicants for one job role.P2Government spending is also known as public spending and in UK it takes up to 45%of GDP. Government spending is classified in three areas Transfer payments this are payments made available through companionable security system. They include JSA, child benefit, Housing benefit, Income support etc. its main aim is to provide a basic income for unemployed people or a minimum standard of living for people with low income. circulating(prenominal) political science spending this is basically spending on goods provided by the governance e.g. salaries paid to p eople working in NHS and resources for education and defence etc. Capital spending this is spending for infrastructure e.g. motorways and roads, schools, hospitals etc. Government policies on the other hand, are a set of policies produced by the government that are used and developed to influence the UK economy. They are divided in to different areas that influence the way that a business operates.Economic Policy, economic policies are actions taken by the government to influence its economy. Economic growth will be essential for government and Marks and Spencer as well. This will mean that the living standards will increase so it means that people will have more money to spend in Marks and Spencer and other retail shops. There will also be high demand for Marks and Spencer therefore they will be making profit. However if the government decide to increase tax rates, Marks and Spencer will grieve because it means that they have to increase the prices of their goods and services whic h means customers will be reluctant to spend money. Industrial Policy this relates to the government increasing industrial activity in the UK. This mostly focuses more on jobs and skills. For example if Marks and Spencer opens new industries to manufacture goods, they will create more jobs and find skilled effort to satisfy their customers.This polity is mainly used to raise peoples income, new technologies and demographic changes. Competition Policy this is a government indemnity to prevent and reduce abuse of monopoly power. Abuse of monopoly power can lead to market failure and be against the public. Therefore thats why government steps in to protect the interests of consumers. To ensure that competition takes place in UK Competition Act 1998 is used to stop forcing rivals out of business, selling goods and services at different prices for different customers and limiting supplies to make sure prices go up among others. Fiscal Policy this covers the spending and taxation deci sions of the government. The main aim of fiscal policy is to influence aggregate demand (total demand in the economy) by increasing government spending or reducing taxes.The effect of fiscal policy on Marks and Spencer is that when the cashbox of England increases tax, they will have less money for hiring and investing and this may affect consumers because prices may increase. However if they decreased tax rates, this will stimulate investment spending and more job opportunities. Environmental Policy this regards to the environment. Basically for Marks and Spencer they need to make sure that they are protecting the environment by recycling and reducing coke foot print. The Climate Change Act states that climate change risk management must be completed every fivesome years. Businesses like Marks and Spencer must show how they are reducing carbon foot print and how they are protecting the environment.Monetary Policy comprises of changes in the rate of interest to influence the gro wth of aggregate demand, money yield and inflation, this works by changing the rate of growth of demand for money. If the Bank of England sets high interest rates prices will start falling and Marks and Spencer will see the changes in spending from consumers. This is mainly used to confine inflation. However if it was vice versa, low interest rates will lead to more spending hence Marks and Spencer receiving more sales therefore more to pay dividends to shareholders or invest. The diagram below shows the increase in interest rates which lowers demands so prices fall from P to P1 and demand falls from AD1 to AD.M1The government produces set of policies that it uses and develops to influence the economy. Fiscal Policy is the use if taxes and government expenditure to control the total demand of the economy. Increase in taxes will decrease the demand. Government expenditure on the other hand, encourages people to purchase by reducing the price. Taxes and expenditure both use law of demand in order to control aggregate demand.The advantages of using fiscal policy for Marks and Spencer will be that if the government increases demand e.g. by berth income tax or indirect tax, it means that people would be willing to spend more because prices will go down hence they can get more with their money. Marks and Spencer will benefit because the demand will be high and hence they get more profit at hand. With this profit they will be able to invest more in to the business and also pay their corporation tax. The corporation tax will then be taken by the government again and this will help the society and people in need e.g. NHS and Education.A disfavor of fiscal policy is that another problem can arise when solve the other. For instance stimulating demand in the economy to decrease unemployment may worsen inflation because a right slickness in mass demand will cause a rise in price levels. Therefore when prices rise go up, as much as there is more demand, some people m ay be hit by inflation and may have to pay more for their goods in Marks and Spencer than normal. Below I have illustrated what I have just explained. On the contrary decreasing demand to control inflation will cause short demand therefore unemployment arises.In the diagram it shows that increase in government expenditure, will increase inflation basically prices will elusion from P to P1. Also there will be more demand so it will shift from AD to AD1.This will benefit Marks and Spencer because the more the demand the more they pay corporation tax therefore helping the society i.e. education, NHS etc. In the diagram it shows that increase in government expenditure, will increase inflation basically prices will shift from P to P1. Also there will be more demand so it will shift from AD to AD1.This will benefit Marks and Spencer because the more the demand the more they pay corporation tax therefore helping the society i.e. education, NHS etc.