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Great Britain has recently experienced strong currency depreciation relative to the Euro. Why would this cause...

Great Britain has recently experienced strong currency depreciation relative to the Euro. Why would this cause GDP to fall? What type of industry would most likely suffer and why?

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Answer #1

With a currency depreciation, the value of the currency with respect to foreign currencies falls. This portrays a negative image of the country and investors start becoming doubtful about investing in the economy.

As a result, they start pulling out their money from the economy, leading to a fall in investment.

Since GDP is made up of consumption, investment and government expenditure and net exports, a fall in investment leads to a fall in GDP.

Industries using imported goods as inputs or raw materials would most likely suffer as their input cost would increase.

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