Annual reweighting of the sterling exchange rate index

As announced on 16 February 2024, the Bank has now completed the regular annual update of the sterling exchange rate index weights. The new set of weights took effect from 13 March 2024 and incorporates revisions from 2017 onwards.

Overview

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:

The new sterling ERI 

Narrow and broad sterling ERI

There are two measures of the sterling ERI available: narrow and broad. 

Countries are included in the narrow index if their share of either UK imports or exports on average over the latest three-year period is greater than 1%.  ERI weights for each selected country are based on the latest available full set of world trade data, currently 2022. 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 is greater than 0.5%. 

Countries in the euro-area are included in both the narrow and the broad index regardless of 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 with newly available world trade data, so that weights based on 2022 trade data are now used to calculate the chain-linked ERI from the beginning of 2023 onwards. Revisions to the weights stemming from revised trade data result in small changes to past values of the indices.

Latest sterling ERI weights

We publish new sterling ERI weights in March each year:

Sterling ERI weights (published 13 March 2024) 

This year’s key changes to the narrow sterling ERI

Croatia joined the euro-area on 1 January 2023 and accordingly entered both the narrow and broad measures in the latest period. Due to revisions in source data, Malaysia has re-entered the broad measure from 2017 to the latest period.  

There have been no other changes to the constituent countries of either the narrow or the broad measure as a result of this year’s update.

The table below illustrates the most notable changes to the narrow index from this year's reweighting exercise and shows countries where a new or existing weight has changed by more than 0.2% in absolute terms. The index remains referenced to January 2005=100.

2020

2021

2022

2021-2022
Y-on-Y change1

2020
Revision1

2021
Revision1
Belgium and Luxembourg 4.8% 5.0% 4.0% -1.0% 0.0% -0.2%
Croatia 0.0% 0.0% 0.2% 0.2% 0.0% 0.0%
Denmark 1.2% 1.2% 1.0% -0.2% 0.0% 0.1%
France 6.1% 5.5% 5.9% 0.4% 0.0% -0.1%
Germany 10.9% 10.6% 9.2% -1.4% 0.0% 0.2%
Greece 0.5% 0.5% 0.7% 0.2% 0.0% 0.0%
Hong Kong 1.3% 1.5% 1.2% -0.3% 0.0% 0.0%
India 2.2% 2.5% 2.8% 0.3% 0.0% 0.0%
Ireland 5.4% 5.4% 5.0% -0.5% -0.1% 0.3%
Italy 3.3% 3.2% 3.4% 0.2% 0.0% 0.0%
Netherlands 6.5% 6.1% 4.9% -1.2% 0.0% 0.1%
Poland 2.2% 2.0% 2.2% 0.2% 0.0% 0.0%
Portugal 0.6% 0.7% 0.8% 0.2% 0.0% 0.0%
Spain 3.3% 3.1% 3.9% 0.8% 0.0% 0.1%
Switzerland 3.0% 3.1% 3.4% 0.2% 0.0% 0.0%
Turkey 1.5% 1.8% 2.0% 0.2% 0.0% 0.0%
United States of America 20.0% 20.7% 21.8% 1.0% 0.0% -0.1%
Euro area total 44.2% 42.7% 40.8% -1.8% -0.2% 0.3%
RoW total 55.8% 57.3% 59.2% 1.8% 0.2% -0.3%

1Differences are due to rounding.

The most notable positive year on year change between 2021 and 2022 relates to USA, which was predominantly driven by increased imports of goods.

On the other hand, the largest fall for any given country weight was Germany, for which its market share relative to other countries decreased for both imports and exports of goods and services.

Other countries with significant year on year change include Netherlands, Belgium, and Luxembourg. For these countries, the movement was primarily driven by decreased imports of goods.

There have been revisions to services imports and exports data from 1999. The most significant impact on the country weights is from 2017 onwards. As a result, pre-2017 revisions were omitted from this year’s re-weighting exercise. 

For any further details or any questions on the sterling ERI, please contact DSDPLTeam@bankofengland.co.uk. 

 

Back to top