Since surpluses are not regarded as being such a problem as deficits, this section will
concentrate on action needed to overcome a deficit, although the actions would be
reversed for a surplus. When there is a current account deficit, the outflow of funds is
greater than the inflow of funds from international trade. The authorities therefore need
to increase exports and/or reduce imports. There are a number of ways in which this
might be achieved.
1 A fall in the exchange rate will have the double effect of making exports cheaper
abroad and imports dearer at home, thus encouraging exports and discouraging
imports. This will be explained fully later.
2 To increase exports British companies that produce for the export market could be
subsidised. This would have the effect of reducing the price of UK goods abroad,
making them more competitive.
3 Import controls could be imposed to restrict the level of imports coming into the
country.
4 A rise in the rate of interest would make Britain more attractive to investors and
therefore increase capital flows into Britain and help offset the current account deficit.