Running Head- [Contemporary Business Environment]

“Evaluating the Contemporary Business Environment”

[Name of Writer]

[Name of Institution]
“Contemporary Business Environment”

Table of Contents
Introduction......................................................................................................................................3

Question 1:.......................................................................................................................................3

Question 2:.......................................................................................................................................6

Short-Term Impacts.....................................................................................................................6

Trade........................................................................................................................................6

Issues Faced by Policy Makers................................................................................................7

Long-Term Impacts.....................................................................................................................7

Energy......................................................................................................................................7

Food Crises..............................................................................................................................8

Question 3:.......................................................................................................................................9

Solving The New Supply Shock..................................................................................................9

Deep Fiscal Repercussions........................................................................................................11

Question 4:.....................................................................................................................................11

Conclusion.....................................................................................................................................13

Recommendations..........................................................................................................................13

References......................................................................................................................................15

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“Contemporary Business Environment”

Introduction

This article will "explain the fundamental consequences that the lockdown had on the

economy of the United Kingdom by employing the circular flow of revenue as an example" in

order to provide readers with a deeper comprehension of the current state of the business world.

The current political climate in Ukraine will have both short-term and long-term repercussions

for the economy of the United Kingdom. "Economic Recommendations to the United Kingdom's

Central Bank in the Event of a Detrimental Impact from the Conflict in Ukraine." Economic

advise for the British government in the event that the situation in Ukraine has a negative effect

on the economy of the country.

Question 1:

“Using the circular flow of income, explain the main impacts of lockdown on the

UK’s economy.”

The IMF predicts a steeper decrease in the UK and worldwide economies this year than those

seen during the 2008–2009 financial crisis. Considering that "infections diminish labour supply,"

"quarantines, regional lockdowns, and social isolation... constrain movement," and "workplace

closures disrupt supply chains and lower production," this makes sense. It also emphasises how

"layoffs, income decreases, fear of contagion, and increased uncertainty" will impact GDP

(GDP) (Rakha, et al,. 2021). According to the Resolution Foundation, "the duration of the

pandemic, the public health limits imposed to contain this same spread of the virus, as well as

other voluntary social trying to distance measures which people use to reduce their risk of

contracting the virus" all play a role in the severity of the initial economic effects (Hu., 2020).

These factors are also useful in understanding the ripple effects of the UK economy's gradual

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reopening, which will show up in our GDP projections. This captures the three methods of

calculating GDP and depicts how these factors influence the cyclical flow of revenue. As far as

theory goes, these are interchangeable. Those three methods are:

 Production: the value of final goods and services created less than the cost of materials

and labour employed in their creation, plus sales taxes and rebates on those goods and

services.

 Income: the sum of all sales of manufactured goods and services, less any subsidies on

those goods and services, less any taxes collected on those sales, plus any other taxes

collected is recorded here (Jessop., 2020).

 Expenditure: total domestic spending (after adjusting for imports) is referred to as

"expenditure."

Figure 1 - Circular Flow of Income

Production: Low consumer demand in the UK is predicted to lead to reduced output,

which in turn may lead to lower sales and possibly the collapse of certain businesses. Staff

members will remain home willingly and involuntarily, reducing the available labour force and
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resulting in lower employment and working hours. Because of how intertwined manufacturing

processes are throughout sectors in the global economy, supply chain disruptions and

breakdowns are likely to cause a drop in output across many businesses. However, COVID-19

could potentially lead to a surge in output for some sectors.

Income: In the event that COVID-19 has a negative effect on the demand and supply of

products and services with in UK economy, this will result in less overall usage of capital and

labour inputs in production. Pay for workers, in the form of wages and salaries, will decrease as

employment & hours worked reduce (Hu., 2020). Moreover, if there is an increase in the labour

market's slack, wage growth could slow as a result. Gross operational surplus (GOS) will

decrease if capital income drops. Mixed-income, which accounts for the benefits earned by the

self-employed, would decrease if this scenario materialised.

Expenditure: Reduced discretionary spending may affect consumer spending. Store

closures, as well as voluntary movement restrictions, may affect consumer spending and other

transactions requiring customer-merchant interaction. How people react to COVID-19 at home

may change spending patterns and profiles. When consumer confidence starts dropping, they

may save more out of fear. Businesses may reduce capital spending as well as cancel orders due

to economic uncertainty and tightening. Lack of construction but also equipment imports may

affect investment (Jessop., 2020). Concerns about international intermediate goods limits may

cause some companies to stock up on particular items at the start of the year, but this may be

accompanied by insolvency or write-offs later in the year.

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Question 2:

“What are the (likely) impacts of the ongoing war in Ukraine on the UK’s economy?

Consider both the short-term and long-term economic impacts.”

Any war/conflict leaves behind a lot of impacts some short-term and some long-term.

Other than deaths and tragedies there are economic impacts as well.

Short-Term Impacts

Trade

Russia receives 0.7% of UK exports and 1.5% of imports. Automobiles and car components,

machinery, and household appliances dominate UK exports to Russia. In 2019, the most recent

year with undisturbed statistics, oil, petroleum products, and precious metals accounted for

nearly all of Russia's exports to the UK (Dellink., 2020). The dispute may affect trade for four

reasons:

 Companies will have trouble shipping from and to Russia. Maersk and MSC have halted

bookings to and from the nation. This comprises Baltic, Black Sea, and Far East Russia

ports, excluding food, medicine, and humanitarian goods.

 The restriction on sending 'dual-use' commodities, such as technology, to Russia may be

expanded. Some Russian banks can't use SWIFT due to financial sanctions, complicating

international transactions (Caldara, et al., 2022).

 International firms are leaving Russia due to reputational risks and current and impending

sanctions. Apple, GM, and Volvo use this strategy.

Due to the ruble's significant devaluation, imported goods and services will cost more for

Russian consumers and businesses. Together, they will reduce Russia's imports and exports. Due

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to limited direct links, the impact on the UK economy should be minimal (Caldara, et al., 2022).

Rising commodity costs and market volatility will be a major challenge for the UK, notably in

the energy industry.

Issues Faced by Policy Makers

In the aftermath of the unequal recovery from the epidemic, policymakers are already

facing a number of challenges, but increased uncertainty and rising inflationary pressures add to

the complexity of the situation. Despite the unfavourable supply shock of uncertain duration and

scale caused by rising commodity prices, monetary policy should continue to prioritise

maintaining well-anchored inflationary pressures and intervening as necessary to guarantee the

smooth operation of financial markets. This is the case even though the duration and scale of the

supply shock are unknown (Gordon and Recio., 2019). As a result of rising inflation, the room

for manoeuvring in monetary policy is becoming increasingly constrained; consequently,

additional temporary, timely, and quite well fiscal measures, whenever they are feasible, provide

the best policy alternate solution to cushion the severe impact of the crisis upon businesses and

consumers. It is possible to minimise exposure to energy market upheavals in the short- and long

- term by regulatory policies that aim to increase energy security as well as competitive nature by

improving the architecture of the market. This is something that can be done in both the short

and long term.

Long-Term Impacts

Energy

Russia exports 17% of the world's natural gas and 12% of its oil. In 2021, its pipeline

shipments made about 31% of total European supplies, making it Europe's largest external gas

exporter. Russian LNG supplies 4% of Europe's gas. Import data aggregates hide substantial

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differences (Kutcherov, et al., 2020). Gas is used to make ammonia and fertiliser. These

industries generate CO2 as a byproduct, that is in growing demands yet suffering shortages. The

EU members nearest to Russia rely on it's own gas the most, while those further west rely upon it

the least. In 2019, Russia supplied 13% of the UK's oil, gas, LNG, or power. This means the UK

imports less overall fuel and more natural gas via Russia than CEE countries (Sziklai, et al.,

2020). In 2019, Germany purchased 30% of its fuel from Russia. If the UK's energy supply to

Europe is disrupted, wholesale prices will rise more than predicted from direct trade links (Mbah

and Wasum., 2022). UK and European gas prices rose in 2022. Traders buy gas in the UK to ship

to Europe to avoid the region's higher prices, reducing supply in the UK & raising prices on the

continent until they are equal. Any interruption in Russian gas supplies to Europe will raise costs

across the region, including in Norway.

Food Crises

Even while Russia's energy is getting most of the attention, the conflict between Russia

and Ukraine could have serious repercussions for the supply of a wide variety of other

commodities, from wheat to palladium. Ukrainian and Russian farms provide much of the world.

For most grains, Russia is the leading exporter, but Ukraine comes in at number two. They also

account for nearly 80% of the global commerce in sunflower oil (Jagtap, et al., 2022). The

worldwide market would feel the effects of any interruption to flows almost immediately, driving

up the price of staples like bread and meat (Izzeldin, et al., 2022). While Africa, Asia, and the

Middle East are the primary destinations for Russian and Ukrainian exports of these agricultural

items, the enormity of the impact on worldwide supplies may result in increased demand from of

the Americas or Europe, trickling through to increased prices there as well (Ali., 2018). Even

while commodity prices account for a relatively tiny percentage of the final food product price,

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UK shoppers could notice increased costs at supermarkets later this year, adding to the effects of

the significant inflation we've seen so far this year.

Question 3:

“What economic recommendations if any can be provided to the government of UK to

remedy any negative effects of the war in Ukraine on the UK’s economy?”

Solving The New Supply Shock

Russia's war on Ukraine came as the UK was already struggling with growing inflation

and a severe worsening in its terms of trade, both of which could be traced back to the rising cost

of imported energy. The Government of UK had to strike a delicate balance between ignoring

short-term price increases and dealing with inflationary threats, despite the fact that recovery

from the outbreak shock is still incomplete as well as inflationary expectations remain still

somewhat below target. Conflict with Russia suggests a more severe and persistent shock, which

will greatly exacerbate the current strategic challenge. When confronted with a commodity price

shock, the central bank is expected to follow the conventional playbook and focus on mitigating

the second-round effects while preventing an increase in inflationary expectations (Mariotti.,

2022). A government shouldn't waste its time trying to stop the rise in prices right now because

that would only have a temporary effect on inflation overall (something that increases in the

policy rate wouldn't affect anyway) and instead should adjust to the inevitable and inevitable

relative price changes. Short-term, the Government of Britain is likely to observe developments

before making any sort of call. It may soon be politically necessary to decide whether to allow

headline inflation to linger above target for a longer period of time or to harm the economy with

in midst of a geopolitical clash.

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The potential for an increase in spreads in government bond markets will further

complicate its activity. There is an argument to be made for a limited budgetary offset of the

shock in this circumstance. To slow the rate of price inflation and help struggling families,

government have implemented a slew of new policies. However, it is debatable whether the

government should rely largely on transfers (which can be targeted but do not help to lower

inflation) or should additionally act through across-the-board tax cuts and managed price caps.

Both kinds of measures are in use. The government will likely enact more extreme pricing

controls during times of war than they would otherwise (Shams et al., 2022). Whether or if the

UK will revise the method that leads to pricing electricity based on the cost of the marginal

source of energy, which works as a potent transmitter of a shock to the price of gas and provides

large rents for electricity producers, is a key question. Recoupments have been implemented by

the governments of other countries, including Spain. Some countries, such as France, have

instituted price controls. No matter where you stand on the debate over the UK’s current

electricity pricing structure, you can't deny that it has to be rethought in light of the recent

increase in inflation.

Temporarily disabling this process would reduce significant tensions in macroeconomic

policy choices. Overarchingly, the war will force the UK to deviate from its usual policy

commitments. It will encourage additional steps into a complex environment where government

intervene in markets for security purposes and where monetary and fiscal policies are highly

interconnected. The emphasis is shifting from a transparent policy framework to coordination. A

step in this direction has already been taken in response to the COVID-19 situation. The

likelihood of things returning to normal is low. The public finances have been and will continue

to be significantly impacted by fiscal support (Shams et al., 2022). Budgetary costs have been

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significantly increased by measures implemented since the summer of 2021. As a result of

potential new measures taken in reaction to rising energy prices, this figure might rise even

higher, perhaps to 1 per cent of GDP (Ari, et al., 2022).

Deep Fiscal Repercussions

The United Kingdom and its component member states must now do the following in

reaction to an urgent security crisis:

 Reduce the impact on prices and revenue caused by a recent, significant increase in

supply.

 Reduce gas imports from Russia and begin stocking up for the upcoming cold season.

 Develop a contingency plan to expand energy supplies that are not sourced from Russia

and distribute them across the Union.

 Integrate energy systems more tightly and establish a common energy security doctrine.

 The cost of hosting Ukrainian refugees should be shared among all countries that accept

them.

 Increase funding for defence and start building a shared defence strategy.

These are just the tip of the iceberg of a much larger endeavour that will put Europe's speed,

decisiveness, and willingness to provide public goods for which it has never been responsible

before, as well as its ability to organise solidarity, to the test. Even in the not-so-distant future,

the ramifications are huge. Until recently, it was thought that in the United Kingdom,

investments in decarbonization, digitalization, & resilience would be the top priorities for the

foreseeable future (Mariotti., 2022). This agenda now includes security, both in terms of

economic and military defence.

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Question 4:

“What economic recommendations if any can be provided to the Central Bank of the UK

to remedy any negative effects of the war in Ukraine on the UK’s economy?”

As a direct result of the Russian invasion, the majority of the panellists feel that the Bank

of England will only need to raise interest rates by a smaller margin at the beginning of the year

than they had initially expected. This belief is held by 55% of the participants in the discussion.

The remaining panels' opinions are split on whether or not interest rates should be increased

more quickly; twenty percent of those polled support keeping things as they are, while the other

twenty percent believe the status quo should be preserved.

The prevailing view holds that the Bank of England should "see through" the supply-side

shock posed by Russia's invasion of Ukraine, which is primarily felt in the form of higher fuel

prices, and stimulate the economy to deal with demand shortfalls despite the continued presence

of the effects of Covid. For Vanguard Europe's Jumana Saleheen, "events in Ukraine represent a

stag inflationary jolt to the UK economy (Liadze, et al., 2022)." The Bank will have to suspend

the rate-raising cycle if it must choose between high inflation as well as sluggish GDP.

According to NIESR's Dawn Holland, "energy prices continue to account for a sizable portion of

inflation." Considering how unsure the future of the energy market is, it would be prudent to

hold off on any rate hikes until we see how things pan out (Holland, et al., 2021). According

to London Business School and CEPR, "other forces are already hurting demand adversely, and

they will intensify," making the case for additional economic stimulation rather than simply

looking past the supply shock (Edmans, et al., 2021). Since the inflation issue is attributable to a

supply shock, which we may realistically expect to moderate so over course of this year, it is

foolish to add interest pressures.

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Martin Ellison, on the other hand, advocates for a policy that is more restrictive. His

conclusion is that the price level in February 2022 was 6.2%, and this is the bottom line (Grover,

et al., 2022). this high inflation is true that the Bank of England may argue that it should "see

through" temporary inflation, however, the consequences of doing so in the face of this high

inflation just wouldn't look good and could have serious repercussions (Ozili., 2022). Given that

this is the first time that the inflation seeking to target structure has been examined from a

hopeful point of view, a little reawakening of the pace of stiffening is certainly necessary in

order to signal a commitment to ensuring that inflation is kept at a low level. This is because the

inflation targeting framework has received nothing but acclaim in all of the reviews that have

been conducted on it.

Conclusion

It says British lockdowns hurt business. It caused employment losses, business closures,

and a stock market catastrophe. Covid-19 may damage the UK economy directly and indirectly.

As constraints are relaxed, economic growth will continue, though sectors may recover

differently. Lockdown, COVID-19, and Ukraine hurt Britain's economy. Focused on research

that improved UK living circumstances. Researchers in the UK have studied job retention or

identity programmes to counteract unemployment and underemployment. This paper evaluates

the "current business environment" and discusses the "main ramifications of lockdown on the

UK's economy." Short- and long-term economic effects of the Ukraine conflict

Recommendations to assist the British economy recover from the Ukraine crisis. How can the

Bank of England counter Ukraine's economic damage? This article discusses British economic

management and Ukraine aid.

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Recommendations

Even though the United Kingdom seems to be doing fantastic work and has intention to

keep developing, there are several aspects which need to be tackled first in order to continue

making progress. It is time for a shift in the way the government operates. Second, future

endeavours should include participation from global corporations. The next phase is a reduction

in the amount of tax, as well as a decrease in the overall price. The United Kingdom needs to

formulate its policies with a time horizon of ten years in mind. At this juncture, it is absolutely

necessary to maintain a watchful check on both the country and global levels.

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