Unit 38 Assignment 1
P1 - Effects of changes in the economic environment on Burberry. Year 2012 unemployment:
Unemployment level: As you can see from the graph the unemployment level has increased from 1.64 million in July 2007 to 2.59 million in July 2012, in five years the unemployment level has raised by nearly one million of unemployed people.
Inflation rate: The graph shows the inflation rate as you can see on October 2011 the inflation rate increased up to 5.2% which was the highest inflation rate, and in the past two years the lowest inflation rate was recorded in July 2012.
Trade deficit: The deficit in July totalled £1.5bn, compared with £4.3bn in June, the official figures showed. Export of goods rose by 9%to £25.8bn while imports shed by 2.1% to £32.9bn. For services, export fell by 0.9% to £15.6bn while imports declined 0.4% to £10bn. Export prices of goods, non-seasonally adjusted, rose by 1.7% and import prices of goods rose by 1.2% compared with February. In the three months ending August 2012, trade in goods and services was estimated to have been in deficit by £9.8 billion, compared with a deficit of £9.2 billion in the preceding three months. Ref: http://www.egovmonitor.com/2012/10/10/uk-trade-deficit-increases-significantly-in-august-2012
Government debt: The UK national debt is the total amount of money the British government owes to the private sector and other purchasers of UK gilts. Public sector net debt was £1,039.5 billion at the end of August 2012, equivalent to 66.1% of GDP. Now I will explain how these four factors can affect Burberry. The unemployment level can have massive impact on the Burberry’s income. It can be affected because if the unemployment rate will keep increasing this means that more people will be out of job and will have less money to spend which basically will affect the sales because people won’t be able to afford the Burberry’s goods. This is very important factor because this also means that the unemployment can affect the Burberry’s staff and some of them might be made redundant, however currently the unemployment rate is high but it’s falling down which means there are more people in jobs. Although inflation rate is decreasing it is still above what was expected (2.5%) and the Government’s target is 2%, this means the prices will still go up this means Burberry’s prices might grow too big and people will be not able to afford it, this can have massive impact on the Burberry’s sales and affect profit, this again can lead to staff redundancy. Impact of decrease in the rate of inflation will be that the prices will still go up but not as much so people will be able to buy more. Trade deficit, from the research I can conclude that the import of goods is higher than an export which means it can have impact on the sales. In the past couple of months the import of goods was bigger than export which clearly means the British economy is slowing down and that there is imported bigger value of goods than exported, this can lead to Burberry’s exporting to other countries abroad will end up slowing down too. This is another factor than can have impact on the sales and profit of the business. However just because the British economy is slowing down this doesn’t mean that it will have impact on every single business in the UK, in fact in this economic crisis some business are actually doing well and are improving their sales, e.g. if Burberry maximize their export into developing countries such as India or China they can count bigger profit. The trade deficit is an important factor when it is growing it has bad impact on the exchange rate because the value of the currency is decreasing which means individuals or business how to pay more money for the same amount of goods or services. When Burberry is supplied from abroad they will have to pay more for the same amount of the raw materials which then can impact on the prices which will rise, however sales in China has...
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