Analyse how the problem of uncompetitiveness in the UK economy can be solved by exchange rate adjustment.

Exports and imports are linked to the exchange rate. If there were a strong pound then it would increase the amount the UK would import because they will be cheaper. The reason for this is because other currencies will be seen as weaker so if the UK bought things from other countries the exchange rate would benefit, as the pound can now buy more of their currency. It would then have the opposite effect on exports. If the pound were strong then other countries would buy fewer exports, as they would be lots more expensive for them across the exchange rate to change from one currency to the pound.

If the UK became uncompetitive then it would have to lower its exchange rate because it would mean our exports would become cheaper for other countries. It would also mean that the UK would import less as it would become more expensive for them. This leads to high competitiveness, as the prices of the global market compared to the UK market would become more consistent.