The sterling exchange rate index (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:
- competition in the UK domestic market from imports from the USA
- competition between UK exports and US products in the USA
- competition between UK and US exports in third-country markets.
The methodology for constructing sterling ERI is explained more fully in the article:
Narrow and broad sterling ERI
Countries are included in the narrow index if their share of either UK imports or UK exports on average over the latest three-year period is greater than 1%. ERI weights are based on the latest available full set of world trade data, which is currently 2015.
The broad index 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 is greater than 0.5%.
Countries in the euro-area are included in both the narrow and the broad index whatever their trade share.
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.
Latest sterling ERI weights
We publish new sterling ERI weights in March each year:
This year’s key changes to the narrow sterling ERI
The following table illustrates the most notable changes to the narrow index from this year's reweighting exercise, and shows 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|
of which: Netherlands
of which: Germany
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 increase in the USA weight (+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.
South Africa has fallen out of the narrow measure, reflecting a continued decline in exports of both goods and services. It is still included in the broad measure.
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%.