Three Macroeconomic Factors in the UK - Essay Example

It can be stated that the GDP growth will positively impact improving the profitability of Sainsbury’s. GDP also positively impacts public spending which is a crucial aspect for a retail organization such as Sainsbury’s as it can enable them to garner more profit. Though, slower growth of GDP can create unemployment, which can, in turn, affect Sainsbury’s profitability as new recruitment can be stopped by the organization along with investing in any new purchases until the economy gets better (Economy Watch, 2009).  

UK interest rate in March’ 2011 had been registered at 0.5% which is a record low (BBC, 2011).  

In February 2011, the inflation rate of the UK rose to 4.4% (BBC, 2011).  

The interest rate has a major impact on the time value of money. Changes in the case of inflation rate generally result in alterations in the interest rate. These two factors are the key decision-making factors for making any investment decision since these factors have a straight impact upon the ‘investment yield’. In the case of the UK, the record low-interest rate will support the investment in shares. Rising interest rates slow down inflation. A lower rate of interest increases the borrowing from businesses which can have an impact on Sainsbury’s. This can create an attraction towards investment in durable consumer goods products such as automobiles, and also in capital types of equipment and buildings.  Valuation of currency can also be impacted by a lower rate of interest making the currency weaker. This can in turn enhance the attractiveness of goods provided by Sainsbury’s to foreign purchasers. This will help to increase the profitability of the company (Economy Watch, 2009). 

The rise in the inflation rate coincides with the increase in the cost of fuel, food and clothing items. The rise in inflation generally takes place due to an increase in the wholesale price index, which can have an effect on the retail spending of a consumer and creates weak demand from consumers. Inflation rise also increases prices of products and VAT (value-added tax) on a product that generally impacts upon the sales volume. The factors such as high level of inflation, subdued growth of wages and indecisive economic viewpoint generally reflect heavily in terms of consumer spending.

Therefore, Sainsbury’s sales and profitability can have a major impact due to the inflationary scenario in the UK (RTE News, 2001).