Boost for Irish exporters selling to UK as ‘safe haven’ sterling set to rise
The new year looks set to bring a boost to Irish exporters selling into the UK market thanks to the rising value of sterling.
The UK pound is predicted to strengthen further in the coming months on the back of an increasingly robust economic recovery there – with rising UK job numbers and house-price increases likely to see earlier than expected interest rate increases.
Sterling gained against the euro and all but two of its 16 major currency counterparts, and hit a two-month high against the dollar on Friday.
The UK is the single biggest market for Irish exports – including Northern Ireland, the sterling area accounted for €11.6bn of sales between January and September 2013, according to figures from the CSO.
It is around twice the value of sales to Germany, Europe's biggest economy.
Sales to the UK include higher levels of goods produced by indigenous and smaller companies here – including food and drink and other traditional, labour-intensive industries.
A stronger pound makes those Irish exports more competitive. It should also make selling into the UK less risky for business that have to pay staff here in euro.
However, the trend could push up the cost of some goods and services here because
the UK remains Ireland's biggest source of imports – including much of the oil
and gas used in the country.
The vote of confidence in the pound is being backed by analysts at US banking giant Citigroup – who are predicting sterling as a “safe haven” currency for 2014.
Citigroup is forecasting the pound to rise to €1.25 against the euro by the end of next year, from the current level of €1.19. Sterling could hit $1.80 over the same period, they said.
“The UK economy is recovering faster than people expected, and we think that continues next year,” according to Citigroup's head of macro research Mark Schofield.
“France is flirting with recession and Europe has a lot of concerns over its growth outlook,” he said.
“We can understand the long position in sterling,” said Peter Rosenstreich, chief foreign-exchange analyst at Swissquote Bank in Zurich. A so-called “long position” is a bet that the currency will strengthen further.
“The UK economy may grow at a faster pace than forecast by policy makers. The prospect of Bank of England tightening getting pulled forward is increasing,” Mr Rosenstreich said.
The pound has gained 6.7pc in value over the past six months, the best performer of 10 developed-nation currencies tracked by Bloomberg's Correlation-Weighted Indexes. The euro appreciated 4pc, while the dollar declined 2.1pc. (Additional reporting Telegraph and Bloomberg).