What is the effect on the UK current account balance following an appreciation of the Sterling?

As the Sterling appreciates, goods and services from the UK become less internationally competitive. This is because more foreign currency is required to purchase the Sterling which means foreign consumers will find this expensive. They will start looking for cheaper substitue goods and services elsewhere and they will stop demanding UK goods and services. This will mean export levels in the UK will fall, as there is less demand, and the current account balance will worsen. This will occur as the current account is calculated by subtracting the value of imports from exports.

Answered by Erin B. Economics tutor

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