# Is the UK the world’s 5th or 9th largest economy?

The UK has one of the largest economies in the world. But how big? Some say it is the 5th biggest; others say it is the 9th. Which is right? The answer is both. Here’s why.

## How to create a league table of world’s biggest economies

When people talk about the size of an economy, they are usually referring to GDP: the total value of goods and services produced in a country. To be able to compare GDP internationally, you need to convert the value of GDP from local currencies into a common currency, which is usually the US\$. The UK’s GDP in 2015 was £1,865 billion. What was it in US\$?

## This is why the UK is the 5th largest economy in the world

An obvious way to convert this is to use market exchange rates – like those you use when going on holiday – to convert local currencies into dollars. Using this method, the size of the UK economy in 2015 was \$2,849 billion (all data from the IMF). Doing the same for the rest of the world allows us to rank the size of all economies. This league table is shown below, with the UK the world’s 5th biggest economy on this measure, just ahead of France but behind Germany, Japan, China and the US.

## This is why the UK is the 9th largest economy in the world

As you will have gathered by now, that’s not the end of the story. There is another approach to compare international rankings. Instead of using market exchange rates, local currencies are converted into US\$ using the concept of purchasing power parity (PPP). PPP takes account of differences in price levels – and therefore purchasing power – in different countries. For example, it reflects the fact that \$100 can buy you more goods and services in Kenya than in the US.

A massive study coordinated by the World Bank called the International Comparison Program calculated differences in price levels in almost 200 economies in 2011. This was then used to calculate PPP exchange rates between local currencies and the US\$. These PPP rates, in theory, would ensure that you could buy the same amount of goods and services in all countries for the original \$100.

Using PPP exchange rates, the UK is the world’s 9th largest economy, with India, Russia, Brazil and Indonesia now also ahead of the UK. This is because many developing countries’ GDP are a lot higher in PPP terms than under market exchange rates given the lower price levels seen in their economies. For instance, India’s GDP in US\$ is almost 4 times bigger using PPP instead of market exchange rates. On this measure, China is the world’s largest economy overtaking the US in 2014.