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Economic factors are all concerned with the so called ‘l�𱹱����’ of the economy. These include:

• economic growth
• unemployment rate
• interest rates
• inflation
• exchange rates

Economic growth

If economic growth is increasing:

• more jobs will be created
• more tax will be paid
• higher levels of employment
• people have more disposable income to spend on goods and services
• this is known as a boom

If economic growth is decreasing:

• higher levels of unemployment
• people will have less money to spend of goods and services
• this is known as a recession

Unemployment rate

If the rate of unemployment is high:

• firms have more potential workers to choose from
• more competition for jobs means that it is easier for a business to keep wages down

If the rate of unemployment is low:

• businesses will have to offer higher competitive wages to secure new employees

Interest rates

When interest rates are high:

• businesses borrow and invest less
• businesses receive more interest on money saved in the bank
• consumers save more money and spend less on goods and services

When interest rates are low:

• businesses may borrow and invest more
• businesses will receive less interest on money in the bank
• consumers are less likely to save and will be more willing to spend money on goods and services

Inflation

When inflation is high:

• prices rise
• customers may stop buying luxury goods and focus on essentials

Exchange rates

Exchange rates can rise or fall. When there is a fall in the pound it has both positive and negative impacts on businesses.

When the exchange rate for the pound falls...

• the pound becomes weak
• a weak pound makes goods cheaper to sell abroad
• if UK firms need to buy in raw materials from abroad then the weak pound buys less
• this makes the cost of production higher
• this extra cost may be passed on to the customers, resulting in higher prices