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# Examine the likely impact of the change in the sterling exchange rate on the UK economy
- URL: https://www.a-level-economics-tutor.com/examine-the-likely-impact-of-the-change-in-the-sterling-exchange-rate-on-the-uk-economy/
- Published: 2026-07-22T07:54:07.000Z
- Updated: 2026-07-22T07:54:07.000Z
- Author: Jaisul Naik
- Tags: Edexcel 8 mark question

### [Edexcel A-Level Economics Paper 2 June 2019 Extract](https://storage.ghost.io/c/ed/77/ed776ea5-c32f-46bf-aa49-8f19b6cd7ac4/content/files/2025/10/INSERT---June-2019-Paper-2.pdf?ref=tootingtutors.co.uk)

**With reference to Extract A and Figure 1, examine the likely impact of the change in the sterling exchange rate on the UK economy. (8 marks)**

One likely impact of the currency depreciation is an increase in economic growth. The extract shows that the Pound depreciated from around $1.50 to $1.30 after the Brexit vote. A weaker pound means that exports are cheaper and imports are more expensive. This means that exports are likely to increase and imports are likely to fall, which improves the trade balance (X-M). As the trade deficit in the UK falls, this causes aggregate demand to increase, which leads to an increase in the real gdp, as there is a higher value of goods and services being produced, to meet greater demand for exports. 

However, a currency depreciation can also cause cost push inflation in the short-run as raw materials become more expensive to import. This can cause a decrease in short run aggregate supply and cause slower economic growth in the UK. These imports are likely to become more price elastic over time.

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