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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.
