Using the data in Extract C, assess the likely impact of the forecast changes in the UK economy on a business such as Mumtaz - Edexcel - A-Level Business - Question 1 - 2018 - Paper 2
Question 1
Using the data in Extract C, assess the likely impact of the forecast changes in the UK economy on a business such as Mumtaz.
Economic growth is projected to increa... show full transcript
Worked Solution & Example Answer:Using the data in Extract C, assess the likely impact of the forecast changes in the UK economy on a business such as Mumtaz - Edexcel - A-Level Business - Question 1 - 2018 - Paper 2
Step 1
Economic growth and its effects
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Answer
Economic growth in the UK is expected to rise from 0.5% to 1%. This increase indicates that overall production is improving, which may lead to higher disposable incomes and increased consumer spending in the restaurant sector, potentially benefiting Mumtaz's business.
Step 2
Impact of rising unemployment
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Answer
Conversely, unemployment is projected to rise from 4.8% to 6.5%. Higher unemployment typically results in reduced consumer spending as individuals have less disposable income, which could lead to decreased patronage at restaurants like Mumtaz.
Step 3
Inflation implications
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Inflation is forecasted to increase from 1.2% to 2.7%. This rise in inflation can elevate the costs of ingredients and other operational expenses for Mumtaz, which might negatively impact their profit margins if they cannot pass these costs onto consumers.
Step 4
Effects of the exchange rate change
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The US dollar to pound exchange rate is expected to improve for the pound (lowering from 1.23 to 0.99). This change can reduce the cost of imported goods, benefiting Mumtaz if they export or purchase ingredients priced in dollars.
Step 5
Overall assessment
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In summary, while economic growth might lead to more dining out, the rising unemployment and inflation pose significant risks for Mumtaz's revenue and profitability. The overall impact will depend on how elastic the demand is for their services and their ability to mitigate rising costs.
