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Using the data in Extract G and your own business knowledge, assess the likely effects of the changes in interest rates between 2019 and 2021 on Buy it Direct - Edexcel - A-Level Business - Question 2 - 2022 - Paper 2
Question 2
Using the data in Extract G and your own business knowledge, assess the likely effects of the changes in interest rates between 2019 and 2021 on Buy it Direct. 
Answer
The significant drop in interest rates from 0.75% in 2019 to 0.1% in 2021 likely offers several benefits for Buy it Direct:
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Lower Borrowing Costs: This reduction enables Buy it Direct to borrow money more cheaply for investments, especially in expanding projects such as their bathroom division. With lower borrowing costs, the company may undertake new projects that enhance their offerings.
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Increased Consumer Demand: Consumers may experience an increase in disposable income, leading to a greater demand for household appliances and electronics. Lower interest rates usually encourage spending rather than saving, which could result in more sales for Buy it Direct.
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Competitive Advantage: By taking advantage of reduced costs, Buy it Direct might offer more competitive pricing for its products, potentially attracting more customers.
Step 2
Counterbalancing Factors
Answer
While there are positive implications, some counterbalancing factors need to be considered:
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Reduced Rewards for Savers: The low-interest environment might dissuade savers from purchasing high-cost items as their savings yield less interest. This could limit some consumers' ability to afford more expensive purchases such as household appliances.
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Depreciation of Currency: If lower interest rates lead to depreciation of the pound, this could increase the cost of imported goods that Buy it Direct relies on. This might necessitate higher prices for their products, which could deter some customers.
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Limited Overall Effect: Since the overall decrease between 2019 and 2021 is only about 0.65%, the impact of these interest rate changes may be more muted than anticipated.
Step 3
Potential Evaluation
Answer
In summary, while the decline in interest rates presents opportunities for Buy it Direct to boost sales and expand operations, the overall impact may be limited. The company must navigate the challenges posed by changing consumer behavior, potential cost increases on imported goods, and a relatively small change in interest rates. Therefore, a careful assessment and strategic planning will be crucial for capitalizing on reduced borrowing costs while addressing consumer affordability.