The Economic Climate & Globalisation
The Economic Climate Affects Every Business
No business operates in a vacuum. When wages rise, people buy more; when unemployment climbs, they cut back. The economic climate is the broader state of the UK economy, and its two key moving parts for OCR are changing levels of consumer income and unemployment. Both shape what customers can spend, what businesses can sell, and what they have to pay for staff and stock.
Changing Levels of Consumer Income
When take-home pay rises faster than prices, customers have more disposable income. They eat out more, replace older phones sooner, book holidays, and trade up to premium brands. When disposable income falls — as it did across the UK during the 2023 cost-of-living squeeze, when food and energy prices jumped ahead of wages — customers do the opposite. They cut restaurant visits, switch from M&S to Aldi, repair rather than replace, and delay big purchases.
Impact on businesses varies sharply by what they sell. Luxury brands (Burberry, Fortnum & Mason) are hit hard in a squeeze because their products are the first thing customers drop. Value brands (Aldi, Primark, Wilko in its heyday) often grow in a squeeze because shoppers trade down. Essential-goods businesses (Tesco, utility firms) are more stable because people still buy food and heat homes.
Rising consumer income lifts demand for luxury and non-essential goods; falling income shifts demand towards value brands and essentials. The same economic shock produces opposite winners and losers.
Unemployment
Unemployment is the number of people actively looking for a job but unable to find one. High unemployment has three effects on UK businesses. First, customers with no wages spend less — so sales fall across non-essential sectors. Second, wage costs drop because more people compete for each job, which can ease hiring costs for firms that are still growing. Third, government spending on benefits rises, which can translate into higher business taxes later to pay for it.
Low unemployment has the opposite effect. Customers spend confidently, but businesses face recruitment pressure: fewer applicants per job, higher wages, and real difficulty filling skilled roles. The UK hospitality sector struggled badly after Brexit and the pandemic as restaurants and hotels fought each other for chefs and waiters, with many putting up pay 10–20% to attract staff. Recession makes the opposite problem bite.
Through 2022 and early 2023 UK food prices rose at around 17–19% year-on-year — the fastest rise in forty years. Energy bills doubled. Wages rose more slowly, so real disposable income fell. Pub chain Wetherspoon saw sales wobble as customers ate at home instead; Greggs saw sausage-roll sales rise as shoppers traded down from sit-down lunches; Aldi overtook Morrisons to become the fourth-largest UK supermarket. The same economic squeeze rewarded cheap and punished expensive.
It also reshaped costs. Cafés and restaurants watched the price of flour, eggs, cooking oil and electricity climb each month. Some passed the rise on in higher menu prices; others absorbed it and watched margins thin. A few closed entirely because they could not do either fast enough.
What Globalisation Is
Globalisation is the process by which national economies have become more connected — trade flows, investment, people and ideas moving more easily across borders. For UK businesses it means three big things: access to foreign customers, access to cheaper imports, and far more competition from abroad.
Growth of Multinationals
A multinational is a business that operates in more than one country. Apple, Unilever, Nestlé, Samsung, Amazon and Toyota all sell in the UK but are based abroad. Multinationals bring jobs (Nissan’s Sunderland plant employs 7,000 people), investment (Amazon has built UK warehouses in Tilbury, Manchester, Coventry) and tax revenue — but they also squeeze smaller UK rivals. Independent bookshops struggled when Amazon undercut them on price; independent electronics retailers closed when Currys and Amazon dominated the market.
International Branding and Competition
Globalisation lets successful UK brands sell worldwide. Dyson sells vacuums and fans in 80 countries; BrewDog opened bars in Berlin, Sao Paulo and Tokyo. International branding means keeping a consistent name, look and product worldwide — the Coca-Cola logo looks the same in Manchester and Mumbai. It costs more upfront (translation, local adaptation, shipping) but builds huge global recognition.
Globalisation also means UK businesses compete with firms they would never have met twenty years ago. A small British t-shirt printer now competes with Chinese firms shipping direct via Temu and Shein. A UK software start-up competes with Indian developers charging a fraction of UK rates.
Global supply chains let UK businesses buy cheaper components, finished goods and labour abroad. Dyson designs in Malmesbury but manufactures in Malaysia; many UK supermarkets source fresh produce from Spain and Morocco; UK call centres have been offshored to India and the Philippines for decades. This keeps prices down for UK customers — but when a global supply chain breaks, every firm that depends on it is hit.
The 2021 supply chain crisis proved it. A combination of Covid factory closures, a shortage of shipping containers, blockage in the Suez Canal (the Ever Given) and HGV driver shortages meant UK businesses waited months for parts and stock. Car production stalled across Europe because of a missing computer-chip supply from Taiwan. Empty supermarket shelves appeared across the UK. Globalisation cuts costs — but it also concentrates risk in far-away bottlenecks.
Influences on Location
Globalisation changes where businesses choose to operate. A UK car firm may build its factory in a country with lower labour costs; a software firm may hire developers in Poland or India remotely; Dyson moved its headquarters to Singapore in 2019. Nissan chose Sunderland in the 1980s because the UK offered easy access to the EU single market — and had to reconsider after Brexit added export paperwork. Multinationals pick locations based on costs, skills, tax, trade deals and proximity to customers — all now chosen across the whole planet, not just one country.
Globalisation gives UK businesses access to bigger markets and cheaper imports — but exposes them to stronger international competition and supply-chain shocks that start thousands of miles away.