Tuesday 16 January 2018

Brexit phoney war is over, and sterling is now the battleground

Full impact is yet to hit but already ripples are being felt

Economic ripples of Brexit can already be clearly felt Photo: Joe Giddens/PA Wire
Economic ripples of Brexit can already be clearly felt Photo: Joe Giddens/PA Wire
John Mulligan

John Mulligan

The Brexit phoney war appears to be ending. Suddenly this week the scale of the implications of the UK's exit from the European Union has started to be felt - and sterling is the first major battleground.

The full impact of Brexit won't be felt until 2019 and afterwards - but already the economic ripples can be clearly felt. Nowhere more than in the slump in sterling versus the euro.

That decline has already impacted companies here. In August, Brexit claimed what was most likely its first Irish business victim.

Tipperary mushroom exporter Schiele and McDonald collapsed, blaming sterling's sharp decline for its demise. The 17-year-old company was losing between €10,000 and €12,000 a week since the June referendum, which sent the British currency into a tailspin.

Sterling's reversal of fortunes made the Tipperary company's products more expensive for buyers in the UK. Most of the 1.5m kg of mushrooms the firm grew every year were shipped there. It employed 70 people.

On the currency market things have only got worse since. For Irish exporters and farmers to remain competitive in the UK market, margins will have to be slashed. That could drive some to the brink.

This week, sterling hit a 30-year low against the US dollar. The euro was worth 90p yesterday, with not much to stop it closing to parity - perhaps by the end of the year.

In 2009, when many retailers north of the border were doing a straight one-for-one swap in euros for sterling, about 4.1pc of grocery sales to shoppers in the Republic of Ireland were actually being made by outlets in Northern Ireland. That equated to over €500m a year of sales that went north of the border.

Research group Kantar Worldpanel has warned grocery retailers that, as sterling weakens again, that cross-border shopping phenomenon could re-emerge. It could spell a real headache for outlets of grocery chains in border counties.

Back in 2009, online retail was relatively niche. Now it is mainstream - and weaker sterling means buying goods from the UK has become much cheaper, regardless of where in the country you live. For other British chains operating here - such as Next and Debenhams - the fall in sterling will mean their Irish sales are more valuable. If the trend holds, it could prompt some UK retailers to expand here rather than at home.

For Ireland's tourism businesses, which have recovered strongly since the economic slump, Brexit and its fallout is bad news. Weak sterling makes Ireland a more expensive destination for UK holidaymakers.

The number of tourists from Britain to Ireland jumped 13.4pc between January and August this year to 2.67 million.

It might seem at first glance that the Brexit vote and weakened sterling haven't had much effect - but many of those visitors booked holidays well in advance. When they get around to booking next year's summer trips, Ireland won't look like such a bargain - bad news for hotels and pubs across the country.

Irish Independent

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