Sunday 4 December 2016

Relief for Irish businesses as vote fears push pound higher

Published 12/11/2016 | 02:30

Philip Lane, Governor of the Central Bank, addresses the ISME annual conference yesterday, where he spoke of Brexit's implications for small businesses. Photo: Jason Clarke
Philip Lane, Governor of the Central Bank, addresses the ISME annual conference yesterday, where he spoke of Brexit's implications for small businesses. Photo: Jason Clarke

Irish retailers and exporters have received an unexpected boost as sterling heads for its best week in more than seven years against the euro.

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The swing makes it easier for Irish businesses to sell into the UK market at lower prices, and means shoppers from the Republic can expect fewer bargains by crossing the Border.

Sterling fell 1.2pc yesterday to 85.77 pence per euro, and looked set last night to be 3.8pc up against the single currency in the week.

After the Brexit vote, the pound weakened to less than 90p to the euro by the start of October, causing consternation for Irish exporters and retailers close to the Border.

Brexit is now the biggest concern for Irish small and medium enterprises, Central Bank Governor Philip Lane told an audience at employers' group ISME's annual conference in Dublin. "The SME sector is especially exposed to shifts in the sterling-euro exchange rate, the level of economic activity in the UK and the prospect of new barriers to trade between Ireland and the UK," he said.

He said some Irish firms may opt to invest in the UK to counter the risk of "higher trade barriers" between two countries.

This week's market swing is a sign investors are cooling on the euro ahead of votes in Italy, France and Germany in the coming months, where anti-establishment movements are hoping to repeat the Trump and Brexit effect. The euro is weakening in particular ahead of a referendum in Italy next month.

It has been called by Prime Minister Matteo Renzi to rally support for parliamentary reforms he says are needed to make the country's political and economic system workable.

But he's said he'll resign if the vote goes against him, creating real uncertainty in a country where the anti-euro currency Five Star movement is on the rise.

After Donald Trump's outsider victory in the US, investors are also now weighing the possible outcomes of elections in France and Germany next year.

The pound is still down about 15pc since the June 23 referendum, but the risks of further slides appear to be waning.

"There is just a bigger theme now and we just don't have a trigger for more pound downside here," said Manuel Oliveri, a currency strategist at Credit Agricole in London.

If so, it will provide real relief to Irish businesses heading into the crucial Christmas trading season.

The brutally sharp plunge in sterling since June has already wiped out low margin exports in sectors including mushroom growing, and is weighing heavily on retailers facing into their most important month.

The volume of traffic heading north over the Border has soared by up to 30pc on Saturday mornings since the Brexit vote, according to research by Goodbody Stockbrokers.

Irish Independent

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