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Home > Statistics > Annual reweighting of the sterling ERI
 

Annual reweighting of the sterling ERI

As announced on 10 February 2017, we have now completed the regular annual update of the sterling Exchange Rate Index (ERI) weights, and the new set of weights took effect from 8 March 2017.

What is the sterling Exchange Rate Index?

The sterling ERI is a measure of the overall change in the trade-weighted exchange value of sterling, calculated by weighting together bilateral exchange rates. It is designed to measure changes in the price competitiveness of traded goods and services, and so the weights reflect trade flows in manufactured goods and services. 

Using the USA as an example, the weights for the US dollar in the sterling ERI are based on:

  1. Competition in the UK domestic market from imports from the USA.
  2. Competition between UK exports and US products in the USA.
  3. Competition between UK and US exports in third-country markets.

The calculation is explained more fully in the article ‘The new sterling ERI’ in the
Winter 2004 Quarterly Bulletin, page 429.
 
The documents below show the current set of weights that came into effect on 8 March 2017, and the previous set of weights that were published last year:
 
The narrow and broad sterling Exchange Rate Indices
 
Two measures of the sterling ERI are presented: narrow and broad. Countries are included in the narrow index if their share of either imports or exports on average over the latest three-year period exceeds 1%. ERI weights for each selected country are based on the latest available full set of world trade data, currently 2015. The January 2005 average index value is set equal to 100.
 
The broad version of the sterling ERI uses the same methodology but has an expanded country set. Countries are included in the broad index if their share of UK imports or exports on average over the latest three-year period exceeds 0.5%.
 
Countries in the euro-area are included in both the narrow and the broad index even if their trade share is less than 1% or 0.5% respectively.
 
To reflect changing trade patterns, the weights and country set are allowed to change over time to give an annually chain-linked index. These weights are updated each year for newly available world trade data, so that weights based on 2015 trade data are now used to calculate the chain-linked ERI from the beginning of 2016 onwards. Revisions to the weights result in small changes to past values of the indices. 
 
Changes to the narrow sterling Exchange Rate Index
 
South Africa falls out of the narrow measure, reflecting a continued decline in exports of both goods and services. It remains within the broad measure.
 
The table below illustrates the most notable changes to the narrow index from this year's reweighting exercise and shows countries and the euro-area where the new weight has changed by more than 0.2% in absolute terms. The index remains referenced to January 2005=100.
Old weight (%)
​  New weight (%) ​
 
Revision in
2014 (pp)1​
 
​Change over
2014-2015 (pp)1
​ 2014
​2014
2015 
​  ​
Euro-area ​
48.2
48.4
47.6
0.3
-0.8
 of which: Netherlands
6.3
6.7
6.3
0.4
-0.4
 of which: Germany
12.8
12.9
12.8
0.2
-0.2
South Africa
0.7
0.7
0.0
0.0
-0.7
Russia ​
1.1
1.2
0.9
0.0
-0.2
Norway
1.0
1.0
0.9
0.0
-0.2
​Switzerland
3.5
3.4
3.7
-0.1
0.2
USA ​
18.0
17.7
19.4
-0.3
1.7
 
1Differences are due to rounding.
 
 
There are notable changes in weights of the USA, South Africa and Netherlands, with absolute movements of 0.3% or more. The rise in USA (+1.7%) largely reflects a significant increase in exports of goods to the USA, as well as a rise in exports of services to the USA. The revision to the USA 2014 weight (-0.3%) mainly reflects a downward revision to export of services to the USA.
 
The decline in the Netherlands weight (-0.4%) reflects decreases in exports of both goods and services to the Netherlands. The revision to the 2014 weight (+0.4%) reflects an upward revision to exports of services to the Netherlands. The fall in the Netherlands weight contributes to the euro-area weight declining (-0.8%) over the period to 47.6%.