Five Key Economical Factors Your Business Needs to Be Aware Of

Economic Factors your Affecting Business

Operating a business in the modern world requires owners to be aware of many different economic factors. As market trends, employment rates, and economic policy constantly shift, business owners that don’t keep up to date could find their companies losing its competitive edge.

So with that in mind, below are five economical factors that business owners must ensure they are aware of.

Employment

The Guardian revealed that the UK’s employment rate experienced a record high in the first three months of 2018. The paper reported that the majority of jobs were full-time posts. This has led to economists predicting that a stronger labour market will lead to increased growth.

Small and Medium Enterprises (SMEs) need to be aware of employment as they signal shifts in consumer habits. Real Business state that manufacturers are currently feeling a sense of buoyancy with new orders at the their highest level in a generation. This shows that if the country is experiencing an increase in jobs, this has a positive effect on the public mood and their spending habits. Business owners should track employment rates and change their business strategy depending on whether employment is up or down.

Inflation

Inflation causes increased prices in rent, utilities, as well as products. As we reported on THP, inflation is having a devastating effect on UK high streets. Wages are failing to match living costs and this is one of the main reasons that shops in the UK are closing. During inflation, SMEs are advised to change their services to match consumer demand for cheaper goods and services. If inflation increases, more customers are likely to shop online, which means that SMEs should ensure they have a strong e-commerce platform.

Consumer Confidence

Periods of high consumer confidence can also present opportunities for SMEs to enter new markets, while times of low confidence may force businesses to cut costs. SMEs in the UK will experience growth in 2018 because optimism levels are high in the country. Approximately 57% of UK respondents said that they are confident that the economy will grow in the next 12 months.

For the rest of Europe, however, the opposite is being felt.
June’s reading on FXCM’s economic calendar shows that consumer confidence is relatively low. This means that economists are expecting an economic downturn for the region in general. For SMEs in the UK, this could mean some sluggishness and higher prices with imports coming in from Europe. In times of low confidence, businesses may also struggle to find new investors. Here on THP we have some tips on how businesses can secure funding.

Interest Rates

SMEs that need to borrow money from the bank must first check if the interest rates are affected by the current economic sentiment. Higher interest rates mean that businesses will need to pay for higher instalment fees. It’s recommended that businesses borrow money when the interest rates are below 1%. Interest rates in the UK are currently at 0.5%. Now is a good time for SMEs borrow money.

Economic Stimulus

A country’s economic stimulus is a double-edged blade. On one hand, it can generate more jobs for people, and attract foreign investors due to the stimulus offering low borrowing rates. However, the bond-buying program affixed to the stimulus means that the country needs to print more money in order for the government to pay for the stimulus.

An economic stimulus is usually bad for business because it weakens the currency’s value. The more money gets printed, the lower the value of the currency. This is what happened when the European Central Bank (ECB) decided spend €60 billion (£52 billion) per month on its asset buying program. Both the Euro and sterling declined as a result of the stimulus. It was only in October 2017 that both currencies recovered as a result of the ECB scaling back its massive economic stimulus. A dip in the value of currency will affect both their imports and exports if they operate outside their home country. If currency values are predicted the drop, SMEs should run through scenarios to determine the best course of action. While an economic stimulus can benefit SMEs, through increased lending, business leaders also have to be aware of the bigger picture.

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