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UK to be Overtaken by France in GDP Rankings thanks to Weaker Pound vs Euro

UK to become 6th largest economy

This quarter should see France elevated to the position of the world’s fifth largest economy and in the process they are expected to relegate the United Kingdom to sixth.

The potentially embarassing slip in the economic rankings table for the UK is however largely down to a devaluation in the value of the Pound relative to the Euro.

According to economist Andrew Sentance, who used to sit on the Bank of England’s Monetary Policy Committee, the “UK is set to lose status as world's 5th biggest economy in current quarter. Pound weakness vs Euro will relegate us to 6th behind France.”

France v UK economic size

The Pound to Euro exchange rate has fallen sharply over recent months as investors demand a premium for holding Sterling in anticipation of Brexit.

The rate has fallen from 1.32 in June 2016 to 1.0993 today.

However, France and India were arguably already larger than the UK if PPP exchange rates were taken into account.  

"France/India are only ahead of UK at PPP exchange rates, which do not reflect the prices consumers and businesses actually pay,” says Sentance.

PPP (Purchasing Power Parity) is a valuation of currencies based on their ability to purchase a basket of similar goods and is largely theoretical in nature.

Some accounts of GDP are adjusted for relative purchasing power parity or PPP - this adjustment is based on an attempt to convert nominal GDP into a number more easily comparable between countries with different currencies.

GDP refers to the total monetary value of the goods and services produced within one country.

Nominal GDP calculates the monetary value in current, absolute terms while real GDP takes the nominal GDP and adjusts it for inflation.

Even when the impact of currency is ignored official data shows the UK economy is slowing down with 0.2% growth being recorded in the first quarter of 2017, down from 0.7% in the fourth quarter of 2016. Second-quarter growth read at 0.3%.

French growth for the final-quarter 2016, first and second quarters 2017 is at 0.5%.

On most counts it would appear the value and size of the UK’s economy is being overtaken by France.

What the real-life implications for the people of France and the UK are of a swap in global GDP rankings is debatable but in terms of national pride, this will be a hard pill to swallow for the United Kingdom.

 

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