BM461 GLOBAL

BUSINESS ENVIRONMENT

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 INTRODUCTION
Global business environment refers to environment of the different sovereign countries
and its influence on the decision-making on resources and capabilities. The current report will
outline the response of UK government by rise in the inflation rate within the economy.
MAIN BODY
Evaluating the UK Government Response to the rise of Inflation in the economy
Inflation refers to the increase in the general price level of products and services in the
economy. When there is rise in the prices, each unit of currency results in buying fewer goods
and services, this results in reduction in the purchasing power of people (Boamah, 2022). There
is great rise in the inflation rate in the UK economy, that cause reduction in the purchasing
capacity within the economy. The UK government has responded to the rise of inflation by
increasing the interest rates. It was one of the best response by the government, to bring down
the inflation rate in the market of UK (Aklin, Arias and Gray, 2022). By adopting the contraction
monetary policy it has helped the government to control the inflation in the market. The aim of
this contraction policy is to have reduction in the money supply in the economy by increasing
the interest rates. This lead to have the economic growth by making the credit more expensive
and thus it will reduce the consumer and business spending. By having rise in the interest rates
it results in reduction in the demand of economy and further also have reduction in the rising
pressure on the supply of goods and services (Pham and Sala, 2022). This is one of the best
example of the monetary policy, which stated that when the prices rise supply decreases and
vice versa.
The government has done improvement in the fiscal policies as this two main factors
that is revenue and expenditure of government. The UK government has also managed the
inflation by having reduction in the import duties on certain goods and raw material that are
increasing inflation rate in the market. The Bank of England has decided to keep the inflation
rate at 2%, but presently the inflation rate is more than five times of decided rate. This has
created major impact on the borrowings from the bank by rise in the interest rates by the banks.
The below graph depicts that in December, the bank has increased the interest rates by getting
order from the government in order to have better response to rise in inflation (Carnevali and
Deleidi, 2022). The interest rates in 2021 was 3.5%, which makes the people to have fewer
borrowings from the bank and have better response to have decrease in the inflation rate within
the economy.

(Source: Figure 1- What is the UK inflation rate?, 2023)

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 CONCLUSION
From the above report it has been concluded about the response of UK government by
rise in the inflation. The report has analysed that government has raised the interest rates that
helps them to have reduction in the inflation rate within the economy.

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 REFERENCES
Books and Journals-
Aklin, M., Arias, E. and Gray, J., 2022. Inflation concerns and mass preferences over exchange‐
rate policy. Economics & Politics. 34(1). pp.5-40.
Boamah, N. A., 2022. Segmentation, business environment and global informational efficiency
of emerging financial markets. The Quarterly Review of Economics and Finance. 84.
pp.52-60.
Carnevali, E. and Deleidi, M., 2022. The trade-off between inflation and unemployment in an
‘MMT world’: an open-economy perspective. European Journal of Economics and
Economic Policies: Intervention. 1(aop). pp.1-35.
Pham, B. T. and Sala, H., 2022. Cross-country connectedness in inflation and unemployment:
measurement and macroeconomic consequences. Empirical economics. 62(3).
pp.1123-1146.
Online
What is the UK inflation rate?. 2023. [Online]. Available
through:<https://www.bbc.com/news/business-12196322>

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