Unit 3 Topic 3 - The impact of external factors


Individuals are not going to know exactly when interest rates, inflation and exchange rates are going to change. But they should aim to be aware of what the impact of the changes will be on them. Economists use PESTLE to try and understand what the impact of factors might be. 


When we talk about political factors in PESTLE analysis in the context of financial services, we are refering primarily to the various ways in whih the policies of a government affect the products and services offered by financial providers, and the impact that these policies have on individuals. 

For example the impact of regulations comes under this branch. We saw how important tight regualtions of the activies of financial providers during the financial crisis. It was widley accpepted that failure to implement better regulation of banking and finance was a key cause of the crisis.  Regulation can affect unethical activity and try to prevent it but it also aims to encourage competition. It is a key EU policy for there to be good financial competition between a range of providers. In practice we saw this happen when the EU asked Lloyds banking group to seperate lloyds TSB into two different banks. 

If we ask ourselves why we regulate banking and finance we can find simple answers, to protect consumers from dishonest, incompetent or financial unsustainable providers. A long term reason for it is that better regulation can mean a more sustainable financial system for individuals and corporations. This reduces the likelihood of future financial crashes. 

The regulators themselves are as follows

  • The bank of englands financial policy comittee 
  • The financial conduct authority 
  • The prudential regulaltion authority

Between the three they are responsable for enforcing the system of regulation that governs the financial service industry. 

Consumer protection is another aspect of this. Consumers do not always buy the right products and services to meet their needs. This might be becuase they do not fully understand what they are buying, or because the provider has made a mistake, or becuase the provider does not make it clear exactly what the product will cost. In recent years we can see cases of consumers being sold inadequete products. The main example is PPI. 

Two very important areas of the topic are Social exclusion and Social inclusion. If certain people or individuals in certain situations are denied access to the benefits enjoyed by most people in their society, they may be said to be Socially excluded. There are many reason someone might be socially exlcuded, it could be becuase they

  • have a physical or mental disability
  • have poor basic skills
  • live in a deprived urban area or remote rural area
  • have low-income
  • are not working as they cannot find work
  • are homeless or of no fixed adress
  • are discriminated against on CAGED reasons 

A key aspect of social exclusion is financial exclusion. Ie the ability to get access to even the most basic financial products or services. It can be caused by the same…


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