Monday 1 May 2017

Weak pound necessary after Brexit vote, UK lawmakers told

Governor of the Bank of England Mark Carney answers questions in the House of Commons. Photo: PA
Governor of the Bank of England Mark Carney answers questions in the House of Commons. Photo: PA
Donal O'Donovan

Donal O'Donovan

The sharp drop in the pound since the Brexit vote in June is both "necessary" and reflects the market's expectation that the UK economy will become less open, Bank of England Governor Mark Carney has said.

The comments, and yesterday's further weakening of the pound, are a blow to Irish exporters' hopes that signs of a sterling recovery would be sustained.

The decline in the value of sterling relative to the euro since June of more than 20pc has hurt Irish exporters, especially in low-margin sectors such as mushroom growing. It has also seen a spike in cross-border shopping by consumers from the Republic.

Sterling fell back broadly on Tuesday, handing back much of three days of solid gains against the euro as media reports refocused traders' attention on the political risks associated with Britain's departure from the European Union.

The pound fell as much as 1.3pc to 87.07 pence per euro before recovering to 86.40 pence on Tuesday.

The immediate trigger for the losses was a leaked memo suggesting that Britain has no overall plan for Brexit and may take six months to agree one due to divisions in Prime Minister Theresa May's government.

With inflation becoming a domestic concern in Britain the drop in the pound since the Brexit vote in June was both "necessary" and reflects the market's expectation that the UK economy will become less open, Mark Carney told Parliament's Treasury Committee on Tuesday.

"It's better to take that in a little bit of inflation with more people employed and nominal wages growing a bit more, than doing the opposite and squeezing it out and taking much higher unemployment," he said. "There are limits, though, to that."

Having come under fire himself for noting the potential impact of a Brexit vote, he said verbal attacks by politicians on central banks, such as criticism by US President-elect Donald Trump of the US Federal Reserve, were a "massive blame-deflection exercise".

Mr Carney has faced political heat in Britain for the BoE's low interest rates while Trump, during the US presidential election campaign, accused the Federal Reserve of keeping rates low due to pressure from the Obama administration.

"The President-elect has voiced some views on the Fed and the stance of monetary policy," Mr Carney said in response to questions from members of Britain's parliament on Tuesday.

Mr Carney has previously said interest rates are low because they reflect weaker demand and investment, a trend that has been developing worldwide since the 1980s due to factors such as globalisation, the impact of technology and ageing populations.

Figures yesterday showed the Irish trade surplus narrowed by nearly a fifth in September, official figures showed.

Exports in the month dropped 4pc to €9.9bn compared with September, while imports increased 7pc to €6.1bn, according to data from the Central Statistics Office.

Conall Mac Coille, economist with Davy Stockbrokers, said overall, Irish export performance appears to be holding up well despite the appreciation of the euro against sterling.

Carney reiterated on Tuesday that the central bank had a neutral stance on future interest rate moves.

Irish Independent

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