Theresa May’s tough talk on Brexit has put so much pressure on sterling that the UK has fallen below France in the global table of economic powers when measured at market exchange rates.
International Monetary Fund estimates of the size of economies in 2016 puts the UK at £1,932bn with France weighing in at €2,228bn, putting the UK ahead so long as a pound buys more than €1.153.
At the start of the week, the prime minister, chancellor, foreign secretary and Brexit secretary all boasted that Britain would get a good deal in EU talks because Britain was the fifth-largest economy in the world. At that stage their words could be justified with sterling worth €1.16 at the end of last week.
The paradox of the tough talk — with suggestions that Britain will leave the single market and clamp down heavily on immigration — has been to pull the rug from under sterling, leaving it at a post-Brexit low of €1.14 on Wednesday and below the point at which it is the fifth-largest economy.
Economists do not regard the use of market exchange rates as the best way to measure an economy’s size as conversion rates do not account for the goods and services that can be bought in any country, but Britain does even worse on more sophisticated measures.
IMF figures show that at purchasing-power parity, the UK is only the ninth-largest, behind China, the US, India, Japan, Germany, Russia, Brazil and Indonesia. On this measure it does sneak ahead of France, which sits in 10th place.
Britain’s relegation will come as an embarrassment to the prime minister at the Conservative party conference because it comes only two days after she said: “A truly global Britain is possible, and it is in sight. And it should be no surprise that it is. Because we are the fifth-biggest economy in the world.”
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Her words sparked a flurry of copycat statements by ministers who supported both the remain and leave votes in the EU referendum. David Davis, Brexit secretary, said Britain’s position of strength in the world stemmed from being the fifth-largest economy; Philip Hammond, chancellor, said that being the fifth-largest allowed Britain to negotiate with the likes of France and Germany from a position of strength.
Boris Johnson, foreign secretary, said Britain was the “fifth-richest” economy in the world, but on a comparable measure of gross domestic product per person, the IMF ranks Britain as only the 27th richest with Qatar and Luxembourg taking the two top spots.
The IMF also cut the UK’s 2017 growth forecast to 1.1 per cent, although it remains more optimistic about Britain’s prospects next year than most independent forecasters.