5CO01 AC 1.3 Answer

5CO01 AC 1.3 Analyse the current impact of interest rates, inflation, and one other external factor on an organisation. *Approx. 450 words

Interest Rates

Interest rates have an impact on borrowing costs for both individuals and businesses, which has an impact on corporate operations and employee fulfilment. In the UK, the Bank of England’s monetary strategy, which has increased interest rates specifically to tackle inflation, has resulted in higher employee mortgage, personal loan, and credit card payments (Greenwood, 2023). Economic challenges within households have accelerated as a consequence, which could lead to increased employee stress and decreased productivity. Due to rising interest rates and the resulting cost of living, many workers require higher earnings in order to meet their financial obligations (Broadbent et al., 2023).

People specialists are compelled by this circumstance to reconsider benefits and pay packages. If a business encounters increased borrowing expenses and has fewer resources for operational enhancements, its capacity to increase compensation is impaired. The organisation must balance competitive compensation with long-term financial viability as it adapts. Some businesses have implemented financial prudence initiatives to assist staff members in handling their finances in reaction to increasing interest rates. To help staff cope with rising borrowing costs, John Lewis Partnership, for example, established a financial literacy initiative (Blue Goose, 2024). In order to reduce financial strain and enhance talent retention, our organisation could facilitate comparable financial literacy initiatives or offer interest-free loans to staff members who are struggling financially.

Inflation

Businesses and their personnel are at risk from inflation, which constitutes the continuous increase in commodity prices. Inflation in the UK is mostly caused by rising energy prices, supply chain interruptions, and geopolitical instability. Additionally, pressure from rising housing and food prices drives the demand for compensation increases to offset diminishing purchasing power (Mihaeljek, 2023). These inflationary pressures may necessitate a review of my organisation’s compensation and benefits policy. In an inflationary environment, stagnating wages weaken employee morale and job fulfilment and increase attrition as workers seek out better alternatives. For my organisation to remain competitive in the labour market, inflation-adjusted compensation appraisals are therefore crucial. Inflation may also affect benefit packages, such as pensions, as retirement income’s purchasing power gradually depreciates.

Brexit

The UK’s exit from the EU has caused supply chain interruptions, challenges involving personnel movement, and changes in regulations for organisations. Consequently, personnel recruitment has become increasingly difficult, particularly in EU-dominated industries such as engineering and hospitality (Davis, 2023). Due to workforce shortages in certain sectors, increased compensation demands have rendered it more expensive to hire and retain staff. Brexit has affected job security and employee expectations, particularly for non-UK workers. Due to stricter immigration regulations, many businesses are now reluctant to hire foreign talent, which has yielded a skills shortage (Davies, 2023). My organisation has had to more aggressively plan personnel in order to lessen the effects of Brexit. In order to address skill shortages brought on by a decline in the foreign workforce, remaining employees must also be reskilled and upskilled.

References

Blue goose (2024) A SMARTER WAY OF PROVIDING FINANCIAL EDUCATION FOR JOHN LEWIS PARTNERS. https://bluegoose.co.uk/case-study-john-lewis/.

Broadbent, P. et al. (2023) The public health implications of the cost-of-living crisis: outlining mechanisms and modelling consequences. https://www.thelancet.com/journals/lanepe/article/PIIS2666-7762(23)00003-0/fulltext.

Davies, C. (2023) ‘The impact of Brexit: polity, politics, policy,’ Journal of European Integration, 45(6), pp. 963–969. https://doi.org/10.1080/07036337.2023.2236423.

Greenwood, J. (2023) ‘The monetary policy strategy of the Bank of England in 2020–21: An assessment,’ Economic Affairs, 43(1), pp. 53–72.

Mihaeljek, D. (2023) ‘Inflation and public finances: an overview,’ Public Sector Economics, 47(4), pp. 413–430.

For this 5CO01 AC 1.3 Answer and the entire 5co01 Assignment Answers