Economic-Factors

Consumer income

• Household income includes money earned from work, pensions or welfare benefits and from investments, such as property

• In the UK, household income has risen overall since 1995

  • It fell slightly as a result of a recession in 2010-2011, further economic uncertainty between 2016 and 2018 and during the recent Covid-19 pandemic

(Data source: Ons.gov.uk (opens in a new tab))

• Once a householder has paid their core living costs, such as rent or mortgage, utility bills and transport costs, they are left with a sum of disposable income

  • In 2023, the average British adult had £782 a month in disposable income, £84 less each month compared to 2022

  • This fall is largely as a result of high levels of inflation and the increased cost of living, especially related to housing and energy costs

Unemployment

• The level of unemployment is a measure of the proportion of people aged 16 to 64 without paid employment

• Unemployment levels are closely linked to changes in the level of disposable income

  • In the UK, welfare payments are made to the unemployed, though they are low

    • On average, the unemployed receive 7% of their previous in-work income, compared to 90% in Belgium

• The unemployment rate in the UK has recently risen from 3.8% in 2023 to 4.3% in early 2024

Business responses to changes in the economic climate

A rise in incomes

• Rising levels of disposable income usually lead to an increase in spending on goods and services

• As long as the rise is expected to be sustained, businesses often respond in a number of ways

Business responses to an increase in income

A fall in unemployment

• As the unemployment rate falls

  • Businesses often have to pay more to secure enough workers

    • The lower the supply of workers, the higher the salaries or wages they will have to offer

  • They may need to import labour from abroad

    • E.g. the National Health Service (NHS) is attempting to overcome staff shortages by recruiting doctors from countries including Egypt and India

  • They may need to invest in training to upskill existing workers, and take steps to retain more workers

    • E.g. financial incentives such as employee share schemes or long-service bonuses may encourage workers to remain employed in a business