Demonstrate the impact on the UK of a devaluation of the pound

A devaluation is where a currency looses value compared to other currencies. For example the pound fell nearly 20% after the Brexit vote.Firstly, the devaluation will cause the price of imports to rise and the price of exports to fall. This should increase demand for exports and decrease demand for imports. Causing the balance of payments to improve as we import less and export more. This is important because the deficit on the BoP is a leakage from the economy.Secondly, the devaluation will cause inflation to rise. This is due to the imported cost push inflation associated with with the rise in the price of imports. This could cause inflation to spiral out fo control as expectations adjust and we experience a wage price spiral. This is a cause for concern as inflation shatters confidence in the economy.