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

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Last updated on 12 March 2002