Assess the policies that could be used to reduce the UK’s balance of trade deficit

A country is in a current account deficit when it spends more than it sells, i.e. when the value of its imports is greater than the value of its exports. There are three main ways a country's current account deficit can be reduces. The first is through a devaluation of its currency via the exchange rate, the second is to reduce domestic consumption and spending on imports, and the third is to stimulate supply side policies to improve the country's competitiveness of its domestic industries and exports.A devaluation causes a reduction in deficits as it makes the domestic country's exports cheaper and their imports more expensive, as the domestic country's currency becomes cheaper relative to other countries. Supply side policies also increases the competitiveness of the domestic industries. For example , privatisation and deregulation by the government will raise efficiency due to the profit motive of the private sector. Increases in efficiency lead to lower costs of production, hence lower prices, hence more exports, further reducing the deficit. Lastly, tighter fiscal policy/higher taxes lowers the deficit, as due to not having as much income as before, domestic residents will lower their expenditures, meaning less demand for imports. My NotesA current account deficit - value of imports greater than value of exports. Policies to reduce deficit involve:DevaluationReduce domestic consumption and spending on importsSupply side policies to improve the competitiveness