Inflation is the rate of increase in prices over a given period of time.

One of the main

macroeconomic objectives for the government is low and stable inflation. In this case
inflation is seen to be cost-push.

Decision to leave the EU may affect UK-based business operations such as Britvic. Britvic
may face higher costs for raw materials when importing from abroad. Considering the
fact that the introduced tax on sugar drinks will further increase production costs, Britvic
may have no choice but try to pass these costs onto consumers. Therefore, it will
increase the price for a product, allowing to maintain profitability.

However, increased price for product may result in decreased demand. Since inflation
result in decrease of real income, consumers may have less buying power with rising
prices, affecting sales of Britvic. Nevertheless, sales level after price rise depends on PED
of a product. With Britvic soft production not being seen as necessity and higher
competition with potentially cheaper substitutes available like store owned brands,
consumers may change their buying decision. First of all with rising prices consumers will
aim to fulfill their needs. Therefore, it might be a better option to cut costs elsewhere.
But with depreciated pound Britvic production may be more competitive from a foreign
point of view. Decreased in value pound may increase demand from abroad, increasing
export levels what may offset increase imports.

Higher input costs may require to reduce capacity to try to maintain profitability levels.
Downsizing the workforce may be one of the ways to do so. Making employees
redundant will allow Britvic to reduce costs related to wages. Therefore, it may help
Britvic to keep prices and demand the same. But redundancies may attract public’s
attention, including trade unions and pressures groups, because it may seem unfair to
leave employees without a workplace through no fault of their own. It may lead to a bad
reputation for Britvic, discouraging consumers from making a purchase. Unethical
behavior may lead to decreased sales and further increased costs for Britvic at the time
of rising inflation.

However, effect of inflationary pressures may be regulated by the UK government to

stabilize economy. Inflation may be controlled through adjusting monetary policies.
Raising interest rates may limit consumer and business borrowing, which can contribute
to slowdown in economic activity initially. Eventually increased interest rates will be
appealing for foreign investors, attracting FDI and leading to appreciation of the pound.
Therefore, this may help counter inflationary pressures associated with imported goods
for Britvic.

Inflation may restrict Britvic’s abilities to innovate. Limited working capital with
increased input costs may limit budgets available for R&D. Therefore, lack of innovation
may have influence on Britvic’s competitiveness, further affecting market share on the
market and level of sales. Lack of innovation will affect the UK as economy as whole,
decreasing its level of competitiveness internationally. This is because rising inflation
may also affect confidence of Britvic in the UK economy, affecting their willingness to
invest into it.

In conclusion, to what extent inflation may have effect on Britvic’s operations depends
on its magnitude. It may be considered that inflation may allow for Britvic’s production
to look more competitive on the global scale with depreciated pound. However, it may
be argued since the EU accounted for 50-55% of UK exports before Brexit and as a result
of increased costs coming from customs check from both sides, it depends on level of
inflationary pressure and exchange rate fluctuations in partner countries. Furthermore,
PED also plays crucial role ‘cause it affects a business’s decision about pricing strategies
what may help to overcome increased costs.