The political and economic environment in which business operates is a key determinant of overall performance.  A healthy business environment is one, which is characterised by stability, flexibility and a high quality of life.  Five areas of the business environment are considered:

• Macroeconomic stability – macroeconomic instability affects business confidence and can have a negative effect on investment and long term planning decisions.

• Competition – an open economy with strong domestic and foreign competition in UK markets helps spread best practice and improves efficiency.  It also encourages the development of new products and processes.

• The labour market – modern, fast changing economies need flexible efficient labour markets in order to respond to changing circumstances and to make the best of new opportunities.  They also need to offer appropriate worker protection.

• Institutional and political environment – business confidence and the willingness to invest is affected by the institutional and legal framework, and the efficiency of the regulatory system.  The latter is also particularly important for consumer confidence.

• Quality of life – a goal in itself but also a key determinant of economic performance in a globalised economy where attracting key knowledge workers is an important factor in competitiveness

Last updated on 12 March 2002