Topic
The real barrier to UK exports is the lack of productivity
Instructions
You are required to study the above case and answer the following questions. Use diagrams and
examples, and information from your own independent research and the case study itself to
illustrate and support your points and arguments.
i. What is meant by “balanced economic recovery”. Explain. (80 Words, 4 marks)
ii. Explain why a strong British pound is not favorable to the UK economy in the long term
(200 Words, 10 marks)
iii. Outline at least six possible benefits to the UK economy of the strong British pound. (240
Words, 12 marks)
iv. Examine why the fall in the value of British pound (depreciation of pound) failed to have
a significant impact on the UK’s exports. (240 Words, 12 marks)
v. Assess the likely effects of British companies shifting their production to more high-tech,
capital-intensive production methods on the UK economy (focus on its effects on UK
economic growth, unemployment, inflation and balance of trade). (240 Words, 12
marks)
Answer Preview
Why a strong British pound is not favorable to the UK economy
A strong British currency means the pound becomes more worth compared to other foreign currencies. UK exporting companies may find their products very expensive for overseas consumers, particularly those operating in very competitive markets. The much enjoyed economic recovery may be halted as the exporters find it challenging to improve their performance on international markets. The net impact is overreliance on government spending and household consumption(Elliott, 2015). A strong overseas market is essential to UK’s sustainable balanced economic recovery: while a strong currency minimizes inflationary pressure in the short run, the consumption-led upturn weakens UK’s trade in goods and services, and balance of payments(Economicshelp.org, 2013). With suppressed demand on exports and increased spending on imports, a decline in domestic Aggregated Demand would be expected, lowering the economic growth.
Word Count: 1300