To maintain a favorable balance of trade, Britain must export In the Western world, currencies are particularly valued against

Man: Although some countries may he capable of producing all the food, manufactured products or services needed by their population, they will normally specialize in the production of only some of these goods or services. By specializing, surpluses are created which can be traded with other countries.
A country may lack natural resources: although the UK has discovered and used North Sea oil, it lacks reserves of many minerals such as iron ore. The country will therefore have to obtain what it lacks naturally from other countries, again by trading its own surplus products.
The United Kingdom depends on foreign trade.
Imports are received from other countries and paid for by the UK.  Exports are sent overseas, for which the country receives payment. The trade consists of both "visible" and "invisible".
Visible trade consists of goods that are imported or exported. Invisible trade is made up of services such as banking, insurance and tourism, which are also imported and exported. There will be further discussion on it later.
A country benefits from trading with other countries. These benefits come from greater competition, greater specialization and greater choice.
The United Kingdom needs to trade with other countries for many reasons:
1．It lacks natural resources and raw materials.
The type of climate means that certain foodstuffs cannot be grown naturally and minerals not found here will have to be imported.
2．It needs foreign currency to buy what it cannot produce, and this foreign currency is gained by selling exports.
3．Its manufacturers gain from wider markets, allowing greater production and economies of scale.
4．As trade increases, unemployment may fall, which benefits the country as a whole, as well as an individual worker.
5．Its population gains from the wider choice of goods and services now available.
However, there are some changes in UK trade; until recently, the United Kingdom was regarded by other countries as essentially a producer of manufactured goods for export, with raw materials and foodstuffs being imported in return. Exports of manufactured goods and semi-manufactures’ are still very important, and are boosted nowadays by the export of North Sea oil.
The large imports to the UK are now also finished manufactured goods, with foodstuff imports taking a smaller proportion of the total than previously. We said last time that Britain depended on trade in order to survive. Generally speaking, she is not rich in natural resources and must therefore import large quantities of food and raw materials (crude oil, chemicals, ironware etc.). She must export large quantities of manufactured goods in order to pay for the food and raw materials and maintain a favorable balance of trade. Trade in commodities like oil and cars is known as visible trade.
However, there is another type of trade known as invisible trade. Invisible trade is not concerned with commodities but with movements of money. It includes invisible imports such as money spent by the British government overseas, loans to developing countries, sterling spent by British tourists abroad, payments to foreign shipping companies and so on. At first sight these payments look like exports because the money goes overseas, but they are in fact imports because the expenditure they represent is lost to the British economy.
Similarly, there are invisible exports such as profits, interest and dividends from overseas investment, foreign currency spent by tourists to Britain, payments received by British shipping companies, receipts from insurance, etc.
During the late 1990’s Britain went through a long crisis in her balance of payments. The balance of payments is a complicated matter, but basically it is the difference between what a country spends and what it earns. For various reasons Britain was spending more abroad than she was earning during 1997 and 1998. So there was a balance of payments deficit. In 1997 Britain devalued the pound by about 14%% and this made her exports more competitive abroad by making them cheaper. Two years later the balance of payments showed a surplus again. By 1992 there was more trouble with the balance of payments but instead of devaluing the pound, Britain decide to let it "float", i.e. its value rose and fell in response to the market.
In the autumn of 1993 the major oil-producing states in the Middle East and elsewhere raised the price of oil very considerably and caused a major balance of payments crisis in all the oil-importing countries in the world, including Britain. The British Government hopes that the so-called "oil deficit" will begin to disappear when the oil from the North Sea is available in large quantities.
As we have seen, the value of a nation’s currency is a reflection of its trade, But currencies are valued against each other and in the western world this means, in particular, their value against the American dollar.
Exchange rates reflect many economic forces. For instance, they reflect the state of a nation’s trade, the health of the American economy and also the international price of gold. Until 1932 the pound, for example, was backed by reserves of gold.
However, in that year Britain "went off the gold standard" and it was no longer necessary for each printed note to be supported by a pound’s worth of gold in the Bank of England.