1

Ruth Lea

Economic Adviser

Arbuthnot Banking Group

ruthlea@arbuthnot.co.uk

07800 608 674

PERSPECTIVES By Ruth Lea, Economic Adviser to the Arbuthnot Banking Group

The Authorities begin to get to grips with Brexit: post-referendum update 18th July 2016

Introduction: a new Prime Minister and a new Chancellor

Since our last Perspective there have been momentous political events. Rather unexpectedly, Theresa May assumed the office of Prime Minister on Wednesday 13 July, after her final opponent withdrew from the Conservative leadership contest on the previous Monday. The markets, having effectively factored in two months of political uncertainty, reacted with relief on the appointment. Her key economic appointments have been Philip Hammond as the new Chancellor, David Davis as Secretary of State for Leaving the European Union (a new post), Liam Fox as Secretary of State for International Trade (also a new post) and Greg Clark at a revamped department for Business, Energy and Industrial Strategy. The Department for Energy and Climate Change (DECC) was abolished. It is, of course, very early days in the new administration but the new Chancellor has already made it very clear that there will be no “emergency Budget” and both he and the new Prime Minister have dropped the budget surplus objective by 2020.1,2 In addition, Mr Hammond has indicated that he stands ready to “borrow and invest” (borrowing costs are at all-time lows) following the Brexit “shock” to the economy.3 But we will probably have to wait until the Autumn Statement for any substantive statements on this issue. The Government is, however, beginning to get to grips with Brexit. As Mr Hammond has said:4

“There is no plan for an emergency budget, as Theresa May made clear. There will be an Autumn Statement in the normal way and then there will be a Budget in the normal way. But the markets do need signals of reassurance, they need to know we will do whatever is necessary to keep the economy on track.”

2

Developments in monetary policy

The Bank is also adjusting to Brexit. Prior to the MPC meeting of 14 July, the Bank Governor gave a very strong hint that there was likely to be monetary easing in the near-term, though there have to be doubts that a further cut in interest rates would do much to stimulate economy.5 In a speech on 30 June, he said that a “deteriorating outlook” meant that some monetary easing would “likely be required over the summer”.6 And, as if to underscore the UK’s potential economic fragility, he voiced concerns (somewhat apocalyptically) that risks to financial stability had begun to “crystallise” in his opening remarks at the recent Financial Stability Report press conference.7-9 He then announced a measure to boost potential bank lending. Regulatory capital buffers would be reduced by £5.7bn, which would raise banks’ capacity to lend to UK businesses and households by up to £150bn. It was, therefore, a surprise to the markets that the MPC announced no change in interest rates at their meeting of 15 July.10 Eight members voted to keep the Bank Rate at 0.5% (including the Governor) and just one (Gertjan Vlieghe) voted to cut the rate (to 0.25%). The pound, accordingly, firmed. But it is clear that the chances of a rate cut (and/or some other form of easing, for example, more QE) at the next MPC meeting (4 August), which coincides with the August Inflation Report, are extremely high. The key paragraphs in the MPC minutes indicating the mood of the meeting were:

The MPC was committed to taking whatever action was needed to support growth and to return inflation to the target over an appropriate horizon. To that end, most members of the Committee expected monetary policy to be loosened in August (paragraph 35).

The Committee reviewed a range of possible stimulus measures and combinations thereof. It considered the potential interaction between various measures and the financial system, and therefore their influence on output and inflation. Committee members had an initial exchange of views on various possible packages of measures (paragraph 36).

The exact extent of any additional stimulus measures would be based on the Committee’s updated forecast. Their composition would take account of any interactions with the financial system and their effectiveness in supporting the domestic economy. Further detailed analysis across all policy areas of the Bank would be required. (paragraph 37)

The Bank’s Chief Economist Andy Haldane has also been hinting strongly that more easing was to come. In a recent speech he said:11

I would rather run the risk of taking a sledgehammer to crack a nut than taking a miniature rock hammer to tunnel my way out of prison. …in my personal view, this means a material easing of monetary policy is likely to be needed, as one part of a collective policy response aimed at helping protect the economy and jobs from a downturn. Given the scale of insurance required, a package of mutually-complementary monetary policy easing measures is likely to be necessary. And this monetary response, if it is to buttress expectations and confidence, needs I think to be delivered promptly as well as muscularly. By promptly I mean next month, when the precise size and extent of the necessary stimulatory measures can be determined as part of the August Inflation Report round.

3

The markets have clearly factored in another rate cut, as shown in the latest yield curve (chart 1), and expect rates to stay at historic lows for at least five years. Chart 1 UK instantaneous nominal forward curve (overnight index swap rates (OIS), %), months out to 60 months, at selected dates

13-Jun-14

14-Jul-16

16-Jul-15

12-Feb-1505-Nov-15

28-Jan-16

0

0.5

1

1.5

2

2.5

3

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58

Source: Bank of England, webpage on yield curves.

The economic impact of the Brexit vote

In both the run-up to the Brexit vote on 23 June and subsequently, the impact of the Brexit has been much discussed though, arguably, generating more heat than light. Whilst we have little doubt that the vote has triggered uncertainties in the economy generally and the markets more specifically, it is impossible to know with any precision what can be directly attributable to the vote and what would have happened anyway. There are a multitude of other influences including concerns over Italian banks and Chinese GDP growth (though GDP was reported as growing by 6.7% (YOY) in 2016Q2)12, and when the Fed may raise rates again. One can never know the “counter-factual”.13 Under these circumstances, one should be wary of attributing every adverse economic or market twitch to Brexit thus, arguably, “blaming it all on Brexit”. There is still a paucity of information on how the UK economy is reacting to the referendum result. And, in any case, when more figures are published, interpretation will be complicated by extraneous factors, such as the poor summer weather. But there is little doubt that confidence indicators have weakened since the referendum, which may lead to postponed investment projects and/or a fall in consumer spending. For example, UK consumer confidence “collapsed” in the wake of the Brexit vote, according to a survey by YouGov and

4

the Centre for Economic and Business Research (CEBR) and the RICS UK Residential Market Survey for June 2016 suggested that post-Brexit vote uncertainty had resulted in a marked drop in activity in the housing market.14-15 Most of the responses to the most recent Markit surveys (for June) were received before the Brexit vote, but there was some evidence that the weaker outcomes for the construction and services sectors were partly attributable to uncertainty ahead of the vote.16-17 Interestingly prospects improved for the manufacturing sector in June.18 There have been few hard ONS data released since the Brexit vote and, of those that have been released, they typically lag events by a couple of months. Thus construction output for May, which fell 2.1% (MOM) to be 1.9% down on a year earlier, was released last week.19 The ONS will not be releasing GDP data for 2016Q2 (preliminary estimate) until 27 July and data only start coming in for the months of the third quarter in mid-August. There will not be a GDP estimate for 2016Q3 until end-October (see annex table 1). In other words, there are weeks, if not months, of waiting before we know just how the economy is performing in the wake of the Brexit vote. Turning to key market indicators, the pound firmed last week on the political news as well as the MPC’s decision not to raise interest rates. As can be seen from chart 2 the pound was down to £/$1.32 by 15 July, compared with around £/$1.45 in the weeks leading up to the referendum. This represents a depreciation of around 9%, a fair competitiveness boost – not a rout. Stock markets have been remarkably solid. The FTSE100 was comfortably above its pre-referendum level last week, and even the FTSE250 had recovered most of its post-referendum losses. Chart 2 End-week exchange rates, 19 February 2016 to 15 July 2016: £/$, £/€

£/$

£/€

1.15

1.2

1.25

1.3

1.35

1.4

1.45

1.5

19

/02

/20

16

26

/02

/20

16

04

/03

/20

16

11

/03

/20

16

18

/03

/20

16

25

/03

/20

16

01

/04

/20

16

08

/04

/20

16

15

/04

/20

16

22

/04

/20

16

29

/04

/20

16

06

/05

/20

16

13

/05

/20

16

20

/05

/20

16

27

/05

/20

16

03

/06

/20

16

10

/06

/20

16

17

/06

/20

16

24

/06

/20

16

01

/07

/20

16

08

/07

/20

16

15

/07

/20

16

£/$ £/€

Sources: (i) BoE database (spot rates) to 8 July 2016, (ii) BBC website for 15 July 2016.

5

Timetable for Brexit: Brexit Day to be 1 January 2019?

Even though Theresa May’s appointment as Prime Minister did much to calm political uncertainty last week, there remain major uncertainties about the timetable for Brexit. In our last Perspective we suggested that “Brexit Day” could be on or before 1 January 2019 as a working assumption.20 This would seem in line with early comments made by Brexit Minister David Davis who has said last week the UK should be able to formally trigger its departure from the EU (invoking Article 50 of the Lisbon Treaty) “before or by the start of next year”, with a likely exit from the EU around December 2018.21 International Trade Minister Liam Fox has suggested that “Brexit Day” could be 1 January 2019.22 In the meantime, the country will simply have to adjust to the uncertainties leading up to leaving the EU. David Davis has also said that the “first order of business” should be to strike trade agreements with non-EU countries, even though they cannot be signed until the UK has left the EU.23 This is most encouraging as a key advantage of Brexit will be the UK’s ability to negotiate its own trade agreements with favoured trading partners, including the US, Japan, China and Commonwealth countries.24 There are already encouraging signs that Australia and Canada, to name but two, are very positive about agreeing bilateral trade deals.25-26

The Commonwealth: an underused resource

The prospect of deals with Australia and Canada is a timely reminder of the economic potential of closer relationships between a post-EU UK and the other members of the Commonwealth. As we have discussed on previous occasions, the Commonwealth has been an underused resource, relatively neglected as the UK’s focus has been the EU for the last 40+ years.27-28 Commonwealth countries taken together, as an economic entity, are rarely discussed. Yet they account for over 17% of world GDP (Purchasing Power Parity (PPP) terms, chart 3a and annex table 2a) and contain over 2 billion of the world’s 7 billion people. The modern 53-member Commonwealth spans five continents and contains developed, emerging and developing economies. It also comprises some of the world’s largest economies and several of the smallest. In its diversity it captures the character of the 21st century globalised economy as no other economic grouping can. The Commonwealth’s membership includes two of the world’s largest ten economies (the UK and India), two members of the G7 (Canada and the UK) and five members of the G20 (the UK, India, Canada, Australia and South Africa). The Commonwealth has global significance and huge potential. Apart from its sheer size there are three factors which are relevant to trade:

The countries have favourable demographics and growth prospects. They are set to be the growth markets of the future, alongside the US, China (albeit after its slowdown) and other buoyant economies. Specifically, the Commonwealth’s demographics compare very favourably with several major European countries, where working populations will age and shrink.

6

Secondly, because of shared history and commonalities of language, law and business practice, it has been estimated that Commonwealth countries trading with one another experience business costs 10-15% lower than similar dealings with non-Commonwealth countries of comparable size and GDP. This has been called the “Commonwealth advantage”.29

Thirdly, the Commonwealth also has the advantage of being a group of friendly (non-threatening and non-adversarial) countries which includes many with deep reserves of key natural resources.

Crystal ball gazing is a risky business. But, insofar as it shows the changing relative economic significance of the Commonwealth compared with the EU, the US and China, it is a useful exercise. Chart 3a shows how the world economy has changed since 1980 in PPP terms and is expected to change until 2021 (the final year of the IMF’s current forecasts). In 1980 the EU28 countries accounted for over 30% of world GDP, whilst the Commonwealth contributed nearly 15%, the US nearly 22% and China just over 2%. By 2015 the EU28’s share had dropped to 16%, a smidgen ahead of the US, whilst the Commonwealth has increased its share to 17%, on a par with China, which has shown simply staggering growth over the past 30 years. Commonwealth GDP had, therefore, overtaken both the EU and the US by 2015. And according to the IMF, China and the Commonwealth will continue to pull ahead, not least of all because of the expected buoyant growth in India. The PPP data, of course, are just one way of measuring GDP. The other measure is in market exchange rates (MERs, chart 3b). They both have their strengths and weaknesses. PPP data allow for the relative prices of goods and services (particularly non-tradeables) within an economy and are, therefore, the better overall measures of the internal, domestic “purchasing power” in a country. But MER GDP data provide a better measure of a country’s international purchasing power, so relevant for international trade, than PPPs. MER data have, of course, the disadvantage of being subject to exchange rate fluctuations. And exchange rates can fluctuate wildly. Currencies can, for example, be “overvalued” or “undervalued” for considerable periods of time. Chart 3b shows that a strong US dollar in 2000 noticeably “boosted” the US’s share in MER terms. Developed countries tend to have a lower GDP in PPPs than in MERs, whilst emerging market and developing countries tend to have a higher GDP in PPPs than in MERs. For example, UK GDP in 2015 was $2,679bn (in PPP terms) but $2,849bn (in MER terms), whilst India’s GDP was $7,965bn (PPPs) but $2,091bn (MERs). But note that, as countries get richer, their currencies tend to appreciate and MER GDP estimates tend to converge with the PPP GDP estimates, thus lessening the advantage that developed countries currently have over emerging economies in terms of international purchasing power. (Annex tables 2a and 2b provide selected PPP-MER comparisons.)

7

Chart 3a Shares of world GDP (PPP terms), %

30.2

23.7

16 15.3

21.920.8

15.814.6

2.3

7.4

17.1

19.8

14.7 14.6

18.817.1

0

5

10

15

20

25

30

35

1980 2000 2015 2021f

EU28 US China Commonwealth

Chart 3b Shares of world GDP (MER terms), %

33.8

26.5

22.220.3

25.8

30.9

24.5 23.6

2.7 3.6

15

18.4

13.411.8

14.514

0

5

10

15

20

25

30

35

40

1980 2000 2015 2021f

EU28 US China Commonwealth

Source: IMF, World Economic Outlook, database, April 2016. See annex tables 2a and 2b.

Turning to trade, chart 4a provides UK bilateral trade data with selected Commonwealth countries, selected EU countries, the US and China.30 It shows that UK trade with our major Commonwealth partners is still relatively modest compared with the EU. This is not, of course, surprising given the relative size and wealth of many of the EU’s members. There should, however, be scope for some “catching up” with the Commonwealth post-Brexit. UK-Commonwealth trade is also modest relative to the US (especially) and China.

8

Chart 4b shows that in the decade to 2014 UK exports to Commonwealth countries grew, if anything, a little slower than for the world and, thus, the Commonwealth’s share slipped back, albeit modestly (see annex table 3). Nevertheless, trade with India was buoyant and overall Commonwealth trade (61%) grew faster than for the EU (44%). The really startling feature of this chart was the explosive growth of exports to China (albeit from a low base).

Chart 4a UK trade in goods and services, £bn, selected countries, 2014

-40

-20

0

20

40

60

80

100

Australia

Canada

IndiaSingapore

South Africa

France

Germany

Ireland

US China

Exports Imports Balance

Chart 4b UK exports in goods and services, growth between 2004 & 2014 (%)

69

23

144

47 4020

43 4061

368

61 6844

0

50

100

150

200

250

300

350

400

Comm

onwealth (8)

Australia

Canada

IndiaSingapore

South Africa

EU28France

Germany

Ireland

US China

World

Growth, 2004-14 (%) Growth, 2004-14 (%)

Source: ONS, UK Balance of Payments, the Pink Book, 2015 edition. See annex table 3 for the calculations.

9

References

1. Daily Telegraph, “Theresa May rules out tax rises as she launches her bid to become Prime Minister”, 30 June 2016.

2. FT, “Osborne puts corporation tax cut at heart of Brexit plan”, 4 July 2016. Ex-Chancellor Osborne suggested that he might cut the main rate of corporation tax to 15% in early July. Whether Mr Hammond will take this route is unknown at present. The March 2016 Budget cut CT main rate to 17% in 2020 (this was an additional 1% cut on top of the previously announced CT main rate cuts which reduced the CT main rate to 18% from April 2020.)

3. Daily Telegraph, “We must act now to cut Brexit risk, says Bank”, 16 July 2016. 4. Daily Mail, “New Chancellor Philip Hammond says ‘Britain is open for business’ and promises

there will NOT be an emergency Brexit budget threatened by Osborne”, 14 July 2016. 5. Bank of England, “Uncertainty, the economy and policy”, Speech given by Mark Carney,

Governor of the Bank of England, 30 June 2016. 6. Patrick Hosking, “It’s time for the Bank’s governor to pause on monetary orthodoxy”, Times, 13

July 2016 argued that there was a strong case for fiscal stimulation, especially investment spending. (But) monetary loosening didn’t work beyond a certain point and the evidence was that we were at that point now. There were limitations to the impact on mortgages…and savers would be worse off. Businesses might be able to borrow more cheaply, though the problem here was not a lack of credit supply but a lack of demand. Banks would face a further margin squeeze…and there would be an impact on defined-benefit pension schemes.

7. Financial Stability Report Press Conference, Tuesday 5 July 2016, Opening Remarks by the Governor.

8. Bank of England, “Financial Stability Report”, 5 July 2016. 9. BBC, “Bank of England warns Brexit risks beginning to crystallise”, 5 July 2016. 10. Bank of England, Monetary Policy Summary and minutes of the Monetary Policy Committee

meeting ending on 13 July 2016, 14 July 2016. 11. Bank of England, “Whose Recovery?”, Speech given by Andrew G Haldane, Chief Economist,

Bank of England, 15 July 2016. 12. CNBC, “China Q2 economic growth beats estimates as stimulus shores up demand”, 15 July

2016. 13. Hamish McRae, “Truth about the downturn”, Daily Mail, 9 July 2016, noted that “the British

commercial property market was weakening long before the present rumpus”, referring to the fact that M&G Investments had followed two other major finance firms (Aviva and Standard Life), in suspending trading in their commercial property fund following the Brexit vote (see BBC, “M&G and Aviva suspend property funds following Brexit vote”, 5 July 2016). Though note that Aberdeen Asset Management lifted the suspension of its multi-billion UK commercial property fund later in July (BBC, “Aberdeen lifts property fund suspension”, 13 July 2016.)

14. Independent, “Brexit sees consumer confidence crash, YouGov poll shows”, 30 June 2016. 15. RICS, “Brexit uncertainty hits residential activity”, 14 July 2016. 16. Markit/CIPS construction PMI, “UK construction PMI signals weakest performance for 7 years in

June”, 4 July 2016. 17. Markit/CIPS services PMI, “UK services expansion weakens in June & outlook darkens”, 5 June

2016. 18. Markit/CIPS manufacturing PMI, “Manufacturing PMI at 5-month high in June, 1 July 2016. 19. ONS, “Construction output: May 2016”, 15 July 2016. 20. Ruth Lea, “Post-Brexit trading options for the UK”, Arbuthnot Banking Group, 4 July 2016. 21. BBC, “David Davis: Trigger Brexit by start of 2017”, 15 July 2016. 22. Huffington Post, “Brexit EU migrants ‘might be sent back’ if there’s a surge, David Davis says”, 17

July 2016. 23. BBC, “David Davis: Trigger Brexit by start of 2017”, 15 July 2016.

10

24. Ruth Lea, “Post-Brexit trading options for the UK”, Arbuthnot Banking Group, 4 July 2016. 25. BBC, “UK offered Brexit free trade deal with Australia”, 17 July 2016. 26. Daily Mail, “Brexit won’t be barrier to trade deal, says Canada”, 16 July 2016, reported that

Canada’s trade minister Chrystia Freeland had said that Montreal was keen for the UK to piggyback on a comprehensive free trade deal between the EU and Canada, which is set to be implemented next year. She was keen to ensure a seamless transition in its dealings with the UK.

27. Ruth Lea, “Commonwealth countries are the growth markets of the future”, Arbuthnot Banking Group, 20 December 2011.

28. Ruth Lea, “There’s more to the Commonwealth than the Games”, Arbuthnot Banking Group Perspective, 14 August 2014.

29. Sarianna Lundan and Geoffrey Jones, “The ‘Commonwealth Effect’ and the process of internationalisation”, in the World Economy, January 2001.

30. These data are based on conventional trade accounts and, as such, do not allow for the role of intermediate imports in exports (for example), as the OECD’s Trade in Value Added (TiVA) analysis does. (TiVA analysis reduces the EU’s share of UK trade & increases the US’s for example.) See Ruth Lea, “The OECD-WTO “trade in value-added” research: a break-through in analysing world trade”, Arbuthnot Banking Group, 17 February 2014. But they are the only timely trade data readily available.

11

Annex

Table 1 ONS statistical releases & BoE releases. ONS unless otherwise stated

Date Release 2016Q2 2016Q3

19 July CPI, PPI (June) 2016Q2

19 July House prices (May) 2016Q2

20 July Employment, unemployment, earnings (3 months to May)

2016Q2

21 July Public sector finances (June) 2016Q2

21 July Retail sales (June) 2016Q2

27 July GDP (2016Q2, preliminary estimate) 2016Q2

27 July Services (May) 2016Q2

29 July Money & credit (June), Bank of England 2016Q2

4 August Inflation report, Bank of England …

4 August MPC minutes (August), Bank of England …

9 August UK trade (June) 2016Q2

9 August Index of production (June) 2016Q2

12 August Construction output (June) 2016Q2

16 August CPI, PPI (July) 2016Q3

16 August House prices (June) 2016Q2

17 August Employment, unemployment, earnings (3 months to June)

2016Q2

18 August Retail sales (July) 2016Q3

19 August Public sector finances (July) 2016Q3

26 August GDP (2016Q2, 2nd estimate) 2016Q2

26 August Services (June) 2016Q2

30 August Money & credit (July), Bank of England 2016Q3

7 September Index of production (July) 2016Q3

9 September UK trade (July) 2016Q3

9 September Construction output (July) 2016Q3

13 September CPI, PPI (August) 2016Q3

13 September House prices (July) 2016Q3

14 September Employment, unemployment, earnings (3 months to July)

2016Q3

15 September Retail sales (August) 2016Q3

15 September MPC minutes (September), Bank of England …

21 September Public sector finances (August) 2016Q3

30 September Services (July) 2016Q3

30 September GDP (National Accounts, 2016Q2) 2016Q2

30 September Balance of Payments (2016Q2) 2016Q2

29 September Money & credit (August), Bank of England 2016Q3

7 October UK trade (August) 2016Q3

7 October Index of production (August) 2016Q3

14 October Construction output (August) 2016Q3

18 October CPI, PPI (September) 2016Q3

12

18 October House prices (August) 2016Q3

19 October Employment, unemployment, earnings (3 months to August)

2016Q3

20 October Retail sales (September) 2016Q3

21 October Public sector finances (September) 2016Q3

27 October Services (August) 2016Q3

27 October GDP (2016Q3, preliminary estimate) 2016Q3

31 October Money & credit (September), Bank of England 2016Q3

Sources: (i) ONS website, (ii) Bank of England website (there is no MPC meeting in October). Table 2a GDP (PPP, $bn), Commonwealth (C53), EU28, US & China

1980 2000 2015 2021f

C’wealth “top 12” (C12):

India 382.0 2077.8 7965.2 13754.0

United Kingdom 491.3 1539.0 2679.3 3376.6

Canada 287.3 910.9 1631.9 2031.7

Australia 154.5 550.7 1138.1 1495.9

Nigeria 147.7 (1990) 279.7 1091.7 1494.8

Pakistan 71.8 368.9 931.0 1392.0

Malaysia 45.8 300.5 815.6 1202.3

South Africa 134.8 346.1 723.5 897.5

Bangladesh 42.1 180.2 576.5 950.2

Singapore 21.4 164.9 471.9 606.4

Sri Lanka 15.0 75.3 223.0 332.2

New Zealand 27.6 84.5 168.2 214.3

Total C12 1821.3 6878.5 18415.9 27747.9

All C’wealth (C53) = C12x1.055 1920.1 7256.8 19428.8 29274.0

EU28 3939.1 11735.7 19205.4 23837.5

USA 2862.5 10284.8 17947.0 22765.7

China 302.8 3660.7 19392.4 30777.2

World GDP 13,054.6 49,541.5 113,523.5 155,751.6

Shares of world GDP:

C53 share 14.7% 14.6% 17.1% 18.8%

EU28 share 30.2% 23.7% 16.0% 15.3%

US share 21.9% 20.8% 15.8% 14.6%

China share 2.3% 7.4% 17.1% 19.8%

13

Table 2b GDP (MERs, $bn), Commonwealth (C53), EU28, US & China

1980 2000 2015 2021f

C’wealth “top 12” (C12):

United Kingdom 565.0 1554.9 2849.3 3373.9

India 189.4 476.6 2090.7 3660.2

Canada 273.0 742.3 1552.4 1803.9

Australia 162.8 397.1 1223.9 1535.8

Nigeria 36.0 (1990) 61.3 490.2 759.4

South Africa 83.0 136.5 313.0 323.3

Malaysia 26.4 100.7 296.2 531.3

Singapore 12.1 95.8 292.7 347.3

Pakistan 30.9 79.7 270.0 270x1.5=405.0

New Zealand 22.5 54.1 172.2 216.1

Bangladesh 22.6 54.6 205.7 347.8

Sri Lanka 4.4 16.9 82.1 123.7

Total C12 1428.1 3770.5 9838.4 13427.7

All C’wealth (C53) = C12x1.043 1489.5 3932.6 10261.5 14005.1

EU28 3755.4 8829.6 16220.4 19610.2

USA 2862.5 10284.8 17947.0 22765.7

China 302.9 1208.8 10982.8 17762.0

World GDP 11,098.7 33,304.3 73,171.0 96,387.3

Shares of world GDP:

C53 share 13.4% 11.8% 14.0% 14.5%

EU28 share 33.8% 26.5% 22.2% 20.3%

US share 25.8% 30.9% 24.5% 23.6%

China share 2.7% 3.6% 15.0% 18.4%

Source: IMF, World Economic Outlook database, April 2016. The 2021 MER figure for Pakistan = 2015 figure x 1.50 (2021/2015 growth for PPPs GDP). 1980 data not available for Nigeria. The C53 totals are calculated as the C12 total x 1.055 for PPPs and C12 total x 1.043 for MERs (these proportions are taken from Ruth Lea, “There’s more to the Commonwealth than the Games”, Arbuthnot Banking Group Perspective, 14 August 2014.) Table 3 UK exports of in goods and services, £bn, 2004, 2014

2004 2014 Growth between 2004 & 2014 (%)

Commonwealth, selected countries:

Australia 4.9 8.3 69%

Canada 5.2 6.4 23%

India 3.6 8.8 144%

Malaysia 1.6 2.5 56%

New Zealand 0.8 1.0 25%

Pakistan 0.6 1.1 83%

Singapore 3.8 5.6 47%

14

South Africa 3.0 4.2 40%

Sub-total 23.5 (7.7%) 37.9 (7.4%) 61%

EU28: 159.4 (52.0%) 228.9 (44.4%) 44%

Of which:

France 25.4 30.6 20%

Germany 30.4 43.4 43%

Ireland 19.9 27.9 40%

US 54.6 (17.8%) 88.0 (17.1%) 61%

Japan 7.9 (2.6%) 10.1 (2.0%) 28%

China (PRC) 4.0 (1.3%) 18.7 (3.6%) 368%

World total 306.3 515.2 68%

Source: ONS, UK balance of payments, Pink Book, 2015 edition.