2.5 External influences

• Inflation


  The general rise in prices in an economy over time
• CPI


  Consumer Price Index, a measure of the monthly changes in prices of a range of goods and services
• Exchange rate


  The value of one currency expressed in terms of another
• Currency appreciation


  An increase in the value of a currency against other currencies
• During a boom, recruitment and staff retention may become more challenging and require businesses to pay higher wages
• A depreciation of a currency makes a country's exports cheaper for foreign buyers
• Business cycle


  The upturns and downturns in the level of a country's economic activity (Gross Domestic Product or GDP) over time
• Recession


  When an economy experiences two consecutive quarters (6 months) or more of negative economic growth
• Consumers are deterred from making significant purchases during periods of high inflation
• Direct taxes


  Taxes levied by the government on income, such as income tax and corporation tax
• Where domestic inflation rates are higher than those in other countries, UK businesses are less likely to be competitive due to rising costs and losing sales overseas. Inflation makes domestic prices more expensive
• Exchange rate volatility


  Frequent, unpredictable changes in the exchange rate between different currencies
• Increased income tax reduces the disposable income of customers and demand for most products is likely to fall
• How the government funds public spending

  Through taxation or public sector borrowing
• Businesses can prepare for economic uncertainty by building up cash reserves when times are good
• Aim of consumer protection legislation

  To ensure that consumers are treated fairly by the companies with which they interact
• Aim of employee protection legislation


  To prevent the exploitation of workers
• Consumer protection legislation covers the rights of customers if they are unhappy with their purchase, as well as the safety of products, the standard and quality of products and the product information that must be given to customers
• Purpose of health and safety legislation

  To require businesses to operate in a way that protects the physical and mental wellbeing of their employees, contractors, and customers
• Employee protection legislation covers the right to belong to a trade union and take industrial action, as well as pay and working conditions, equality of employment rights, contracts and termination of employment
• Purpose of environmental protection law

  To hold businesses responsible for their environmental impact
• National minimum wage


  The lowest hourly amount employers are legally permitted to pay their workers
• Aim of competition laws

  To protect the interests of both consumers and businesses by restricting anti-competitive practices
• Cartel


  A group of businesses that collude with each other, usually to agree on setting high prices, in order to improve their profits and dominate the market
• Serious health and safety breaches can lead to fines, investigation by the Health and Safety Executive, and in some cases, prosecution
• Market size


  The number of customers and sellers in a particular market
• Niche market


  A small market with limited demand that often requires specialised market knowledge to produce goods or services that meet customers' specific needs
• Businesses entering large markets may face more competition from established businesses, higher costs of promotion, and challenges in deciding their pricing strategy
• Unique selling point (USP)

  A factor that differentiates a business or product from its competitors, such as local produce, specialty items, or a personalised shopping experience
• Competitive advantage


  A strength that a business has over its competitors, such as outstanding customer service, a great product, or technical expertise
• Businesses entering niche markets may struggle to sell a high volume of goods due to limited demand as the market size is small