What effect would a depreciation of the pound have on the UK economy?

One effect of the pound effectively becoming chepaer is that UK exports will increase. UK goods and services, relative to other countries, will appear less expenisve following the depreciation, duly increasing foreign demand for UK made items. For example, if UK made machine tools cost $1000 relative to the US before a depreciation, and then only $700 after the fall in the pound, one would expect an increase demand for these items from abroad as they are relatively chepaer to export. A depreciation of the pouns makes UK goods more competitive to foreign economies, ultimately increasing total exports. 

Indeed, a weaker pound would also mean that imports would appear more expensive. How much £1 could import would be less following a depreciation. Thus, toal imports would be expected to fall, with UK consumers likely to look for the relatively cheaper domestic goods. For both imports and exports, following a depreciation of a currnecy, demand for domestic made goods will increase, ultimately causing a rise in economic growth and GDP. This can be seen in the boom of US tourism coming to the UK after the Brexit vote in June 2016, as it was relatively cheaper for US consumers to come to the UK as their dollars could get more pounds than usual, with the same being for less UK travel abroad.

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Answered by Benedict H. Economics tutor

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