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What economic factors could affect your business?

27th October 2021 Print

The aftermath of Brexit and the COVID-19 pandemic has many businesses re-evaluating their place in the economy, as industries reel from the specific impacts successive lockdowns and barriers to trade have created. Businesses not poised to address factors which could significantly affect them are doomed to reduced growth and even failure – but what economic factors should your business be looking out for, and how do they affect your business?

Inflation and Interest

Though separate economic phenomena, inflation and interest put equivalent pressures on consumers and businesses alike. Inflation describes the increase in monetary value of goods and services, as prices are adjusted to meet an increasing volume of money in the economy. Meanwhile, interest rates as imposed by banks and lenders inflate the expense cost of certain businesses – and interest rates can be directly affected by inflation, but not always in an intuitive way. Following the rise and fall of interest rates in step with GDP inflation is crucial for forex, as fluctuations in GDP inflation directly affect exchange rates in the currency market – offering opportunities for growth, or if ignored potentially spelling disaster for your portfolio.

Consumer Confidence

Consumer confidence describes how the purchasing population feel about the state of the country with regard to growth and financial health. This may be tied with GDP performance and concerns about inflation, but consumer understanding differs from the objective truths of the market – and if confidence is low despite a healthy rate of inflation, purchasing habits may be affected detrimentally. Conversely, a high consumer confidence drives further sales across the market, making for a vibrant growing economy and a healthy business.


Recession is a major concern for the health of any business, especially with the unprecedented frequency of recessions in recent history. An economic recession is an overarching way to describe a significant decline in economic activity, with more recent definitions requiring two quarters of consecutive GDP decline. Recessions can be caused by a variety of triggers, usually linked to unsustainable economic growth or a single catastrophic economic event, resulting in panic-selling, decreased consumer confidence and less purchasing. The recession is an example of an event rather than a factor – but an event which begets the factors described elsewhere in this piece.


Lastly, unemployment is a significant contributing factor to the health and growth of businesses. Mass unemployment may be triggered businesses failing to survive recession and making employees redundant en masse (demand deficiency), or by labour shortages caused by technological developments outclassing the training of a certain sector (supply deficiency). As unemployment rises, spending falls, and businesses stand to lose money.