Economic policy objectives and indicators of macroeconomic performance

Figure 1: The pound's value against the US dollar fell from $1.40 in mid-2021 to $1.22 in mid-2023. UK goods exports grew slowly while import prices rose. Extract 1: In theory a depreciation should improve the current account by making exports cheaper and imports dearer. However, many UK exports are services and high-value manufactured goods whose demand depends more on quality than price. In the short run, contracts are fixed and volumes adjust slowly, so the deficit can first get worse (the J-curve). Extract 2: The depreciation added to UK inflation by raising the price of imported food, energy and components. The Bank of England had to consider this when setting interest rates. Meanwhile, new trade barriers with the EU have increased costs for some exporters.