Macroeconomic Factors in the UK

You will prepare and submit a term paper on Analysis three macroeconomic factors in the UK and how do they affect the profitability of Sainsbury company. Your paper should be a minimum of 500 words in length. Analysis Three Macroeconomic Factors In the UK and How Do They Affect the Profitability of Sainsbury Company GDP Increase In the year in United Kingdom GDP growth was projected to be slower than it was previously thought. International Monetary Fund (IMF) predicted that GDP would increase by an amount of 4.2% in 2011 as compared to its previous forecast of 4.3% (BBC, 2010). GDP growth is considered as one of the prime indicators that reflects a countries economic health. In case of Sainsbury’s, GDP increase has a certain impact on the performance of the company. Increase in GDP coincides with the certain benefits which can have an impact on Sainsbury’s such as higher standard of living, growth and business confidence. It can be stated that the GDP growth will positively impact towards improving the profitability of Sainsbury’s. GDP also positively impacts upon public spending which is a crucial aspect for a retail organisation such as Sainsbury’s as it can enable them to garner more profit. Though, slower growth of GDP can create unemployment, which can in turn affect Sainsbury’s profitability as new recruitment can be stopped by the organisation along with investing in any new purchases until the economy gets better (Economy Watch, 2009). Interest Rate and Inflation Rate UK interest rate in March’ 2011 had been registered at 0.5% which is a record low (BBC, 2011). In February 2011, inflation rate of UK rose to 4.4% (BBC, 2011). Interest rate has a major impact on time value of money. Changes in case of inflation rate generally result in alterations in the interest rate. These two factors are the key decision making factors for making any investment decision since these factors have a straight impact upon the ‘investment yield’. In case of the UK, the record low interest rate will support the investment on shares. Rising interest rates slows down the inflation. Lower rate of interest increases the borrowing from businesses which can have an impact on Sainsbury’s. This can create an attraction towards investment in durable consumer goods products such as automobiles, and also in capital equipments and buildings. Valuation of currency can also be impacted by lower rate of interest making the currency weaker. This can in turn enhance the attractiveness of goods provided by Sainsbury’s to foreign purchasers. This will help to increase the profitability of the company (Economy Watch, 2009). Rise in inflation rate coincides with the increase in cost of fuel, food and clothing items. Rise in inflation generally takes place due to increase in wholesale price index, which can have an effect on retail spending of a consumer and creates weak demand from consumers. Inflation rise also increase prices of products and VAT (value added tax) on a product that generally impacts upon the sales volume. The factors such as high level of inflation, subdued growth of wage and indecisive economic viewpoint generally reflect on heavily in terms of consumer spending. Therefore, Sainsbury’s sales and profitability can have a major impact due to inflationary scenario in the UK (RTE News, 2001). References BBC, 2010. GDP Growth In 2011 To Be Slower Than Thought, Says IMF. Business. [Online] Available at: http://www.bbc.co.uk/news/business-11482589 [Accessed April 06, 2011]. BBC, 2011. UK Interest Rates Held At Record Low Of 0.5%. Business. [Online] Available at: http://www.bbc.co.uk/news/business-12700649 [Accessed April 06, 2011]. BBC, 2011. UK Inflation Rate Rises To 4.4% In February. Business. [Online] Available at: http://www.bbc.co.uk/news/business-12815228 [Accessed April 06, 2011]. Economy Watch, 2009. GDP Growth. Home. [Online] Available at: http://www.economywatch.com/gdp-growth [Accessed April 06, 2011]. Economy Watch, 2009. Inflation And Interest Rate. Home. [Online] Available at: http://www.economywatch.com/inflation/economy/interest-rates.html [Accessed April 06, 2011]. RTE News, 2011. Inflation Effect Hits UK Retail Sales. Business. [Online] Available at: http://www.rte.ie/news/2011/0324/britain-business.html [Accessed April 06, 2011].

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