Understanding PEST Analysis in Business Contexts

PEST Analysis

Examines Political, Economic, Social, and Technological factors.

Political Factors

Influences from government policies and stability.

Economic Factors

Impact of economic conditions on business operations.

Social Factors

Cultural trends affecting consumer behavior and business.

Technological Factors

Technological advancements influencing market dynamics.

Instability

Risk from operating in politically unstable regions.

National Security

Government measures to protect citizens affecting business.

Major Trading Partners

Countries significantly impacting trade relationships.

Changes in Government

New policies affecting business regulations and costs.

Pressure Groups

Organizations influencing political decisions and legislation.

Fiscal Policy

Government's use of taxation and spending to influence economy.

Direct Taxation

Taxes levied directly on income or profits.

Indirect Taxation

Taxes applied to goods and services purchased.

Value Added Tax (VAT)

Tax on the value added at each production stage.

Income Tax

Tax on individual earnings and income.

Excise Duties

Taxes on specific goods like alcohol and tobacco.

National Insurance

Contributions for state benefits and pensions.

Customs Duties

Taxes on imported goods.

Corporation Tax

Tax on company profits.

Council Tax

Local tax based on property value.

Capital Gains Tax

Tax on profit from asset sales.

Inheritance Tax

Tax on estate value after death.

Consumer Spending

Total expenditure by households on goods and services.

Council Rates

Local taxes that can reduce demand for goods.

VAT

Value Added Tax impacting prices of goods.

Corporation Tax

Tax on a company's profits affecting business costs.

Business Rates

Taxes on commercial properties increasing operational costs.

Landfill Taxes

Charges for waste disposal affecting business expenses.

National Insurance

Tax on jobs increasing employment costs for businesses.

Subsidies

Payments to producers reducing costs and increasing output.

Common Agricultural Policy

EU payments supporting farmers' domestic food production.

Green Power Subsidies

Payments ensuring price stability for renewable energy producers.

Government Expenditure

Government purchasing goods/services exceeding £100 billion annually.

Competitive Tendering

Process of bidding for government contracts to supply goods.

Inflation

Rate at which general prices rise over time.

Basket of Goods

Collection of items used to measure inflation rates.

Consumer Prices Index (CPI)

Target inflation measure using the basket of goods.

Retail Price Index (RPI)

Another measure of inflation including housing costs.

RPIX

Inflation measure excluding mortgage interest payments.

Factory Gate Prices

Prices received by manufacturers for goods sold.

Low Inflation Period

Extended duration of low inflation rates in UK.

CPI Rate May 2016

CPI inflation was 0.3% compared to previous year.

Inflation Targets

Government aims for stable inflation to encourage investment.

Historical Inflation Rates

Inflation peaked at 27% in 1977, averaged 10% in 1980s.

Economic Impact of Inflation

Low inflation encourages business investment and consumer spending.

Inflation

General rise in prices over time.

Cost-push factors

Increased production costs leading to higher prices.

Demand-pull factors

Increased demand causing prices to rise.

Wage/Price Spiral

Cycle of rising wages and prices.

Monetary Policy Committee

Group managing interest rates in the UK.

CPI

Consumer Price Index; measures inflation.

Interest rates

Cost of borrowing money, influences inflation.

Inflationary expectations

Anticipation of future inflation affecting behavior.

Menu costs

Costs of changing prices frequently.

Real incomes

Income adjusted for inflation.

Disposable incomes

Income after taxes and necessary expenses.

Investment discouragement

High inflation creates uncertainty, reducing investment.

International competitiveness

Ability to compete with foreign producers.

Deflation

General decline in prices over time.

Economic recovery

Period of growth following a recession.

Industrial action

Workers' protests for better wages or conditions.

High inflation effects

Uncertainty, reduced investment, and increased costs.

Inflation target

Government goal for inflation rate, typically 2%.

Higher real debt burdens

Debt value increases relative to assets.

Consumer confidence

Optimism affecting spending and demand.

Training schemes

Investment in employee skills and development.

Repricing goods

Adjusting prices due to inflation.

Shortage of labor

Insufficient workers leading to wage demands.

Demand

Consumer desire for goods and services.

Base Rate of Interest

Interest rate set by the Bank of England.

Monetary Policy

Government strategy to control economic demand.

Interest Rate

Price of borrowing or saving money.

2009-2016 Base Rate

Historically low at 0.5% average.

Record Low Interest Rate

Reached 0.25% in September 2016.

High Interest Rates

Peaked at 15% in the 1980s.

Investment Risk

Uncertainty in returns affects business investments.

Consumer Behavior

Changes in spending due to interest rate fluctuations.

Cost of Borrowing

Increases with rising interest rates.

Domestic Consumption

Spending by households on goods and services.

Surplus Income

Extra income available for discretionary spending.

Luxury Goods

Products consumers cut back on during high rates.

Cumulative Impact

Significant effects from gradual interest rate increases.

Business Investment

Spending by businesses on capital goods.

Profitability

Business earnings affected by borrowing costs.

Competitiveness

Ability to compete in the market.

Disposable Income

Income available after taxes for spending.

Consumer Debt

Liabilities that affect spending behavior.

Economic Growth

Expansion of the economy influenced by demand.

Investment Decrease

Reduced business spending due to high rates.

Market Adjustment

Changes in product mix targeting disposable income.

Consumer Switching Behavior

Shifting spending from luxuries to necessities.

Increasing interest rates

Higher mortgage payments reduce consumer spending.

Decreasing interest rates

Lower mortgage payments increase consumer spending.

Gross Domestic Product (GDP)

Annual measure of economic output in the UK.

Real GDP

GDP adjusted for inflation effects.

Economic growth rate

UK's average growth trend is 2.25% annually.

Business cycle

Regular fluctuations in economic activity levels.

Boom

Period of low unemployment and high consumer demand.

Downturn

Economic slowdown with reduced business investment.

Recession

Two consecutive quarters of negative GDP growth.