Describe factors which decrease the exchange rate for the pound sterling.

You must describe at least 2 factors to gain full marks.

1 mark for each valid description.

1 mark for each valid development.

A model answer looks like:

An increase in the rate of UK inflation can lead to a depreciation of the pound (1). High inflation reduce the purchasing power of the pound relative to other currencies, making it less attractive to foreign investors and traders (1).

A decrease in interest rates can cause the pound to weaken (1). Lower interest rates typically reduce foreign investment inflows, as investors seek higher returns elsewhere, leading to decreased demand for the pound (1).