Economic Climate in Britain

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Economic Climate in Britain and How It Is Affecting Businesses Start Up

Presently, the British economy faces a challenge of recovering from the financial crises of 2008. Currently, the efforts directed towards recovery have been sluggish. Even though, the global economic prospects seem to be picking up, Britain’s economic forecast have been reasonably negative. In 2011, the IMF cut its 2011 expansion forecast for the economy of Britain to 1.8%, its third relegate in one year. Additionally, the Organization for Economic Growth report placed Britain as the slowest growing economy among the G7 nations, with the exemption of Japan (Smith, 2003, p. 66). The economic status of Britain is not getting any better. Britain’s gross domestic product declined by 0.8% in the second quarter following the unparalleled 2.4% fall in the first quarter of the year. This recession is more severe and far deeper than that of 1980s, as well as those in the 90s. This economic climate has impacted business negatively, and all industries are feeling the impact. Additionally, the economic output shrank by 5.6% in 2011. Though Britain is pulling its resources and skills to breakthrough out of this unfavorable economic climate, things are not getting better. It is, therefore, not advisable to start up business in Britain, with the current economic climate, since the risks outweigh by far, the benefits of doing the same.

Discussion

The contraction of Britain’s economy means that the aggregate demand is low. People are not spending much on purchases of goods and services, as before. In recession, people tend to save more and spend less, in order to secure the future. Thus, venturing in Britain in the current economic status would mean that the products pile up in store due to low purchasing power of the people. Subsequently, there would be oversupply of goods and services in the market, and this would impact prices. In other words, oversupply would lead to decreased prices of goods and services, thus reducing the profit margin.

The British government is trying to cut its expenditure in order to facilitate recovery. This implies that less money will be available in circulation.  Less money in circulation has affected different parts of the economy.  To begin with, Britain has been experiencing a continuous increase in bank interest rates, thus limiting credit. This means that the cost of capital to start up business is extremely high. High cost of capital is not suitable for business. In the event that the business requires some additional funding to run its operations, it may have to pay a high cost for the capital it borrows from the banks.

Increased cost of capital also means increased cost of operations. Businesses will operate at extremely high costs, which is not likely to be recovered due to low purchasing power.

Additionally, high interest rates limits credit availability for individuals. This means that the purchasing power is minimal, as it is in Britain today. Low purchasing power translates to decreased market for goods and services (Youssef et al, 2003, 56). This may lead to businesses closing down due to inadequate funds to operate.

The economic instability in Britain has led to various implementations of policies. The government is undertaking all essential steps to ensure that the economy is back to stability. In ensuring this, government is making numerous alterations to existing policies, as well as creating new ones. This is extremely risky for new business. The unpredictable government’s decisions may impact a business negatively in that the alterations of the existing policies or creation of new policies may be unsuitable for a business. For instance, the government may raise the tax bar for Beer companies. If the new business was a beer company, it will be adversely affected by this policy.

Other countries may fear to trade with Britain. Thus, in case the new business is involved in export and import business, it might not have a market for the services, as well as products. This may cause business closure in such an event.

Additionally, existing businesses might be at an advantage and may be well adapted to the economic situation. New businesses may not be able to adapt to the situations, in addition to facing cutthroat competition, from the existing ones (Buxton et al, 2000, p. 45). Thus, setting up a new business may be extremely risky in such cases since they may lead to a total loss of business capital. In other words, it is not advisable at all, considering that there already exist some other businesses that are already established.

Conclusion

Britons are optimistic that the economy will pick sooner than expected. However, these are just predictions, and the situation might turn even worse. Therefore, investing in such unstable country would be extremely risky. The outlined risks are extremely essential to consider before taking any step. Nonetheless, not all businesses can go through such situations. Some would thrive well. However, the risks to venture in Britain are extremely high, and it is not advisable at all to start any business in this country, until it gets back on its feet. The risks outweigh the benefits by far.

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Risk and Capital Budgeting Doing Business in Britain
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