Will the Falling Pound Boost Jobs?

Readers Question: Explain why a fall in the exchange rate of the pound sterling is ‘needed for an improved balance of payments on current account, as well as for growth and jobs’

A fall in the value of the pound will reduce the foreign price of UK exports, this makes UK goods more competitive abroad, increasing quantity demanded. This will lead to a boost for the exporting sector (often manufacturing) With more demand and output, firms will take on extra workers helping to reduce unemployment.

A falling pound will also make imports more expensive. Therefore, there will be expenditure switching, from imports to domestic goods. With rising exports and falling imports, the UK should experience an improvement in the current account deficit. (i.e reduction in the record trade deficit)

However, it assumes demand for exports and imports is relatively elastic (Marshall Lerner condition)

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