Monday 16 December 2019

Collapse of sterling has been brutal and swift but brings an ill wind to Irish firms

‘It is worrying for firms and retailers in border areas as a weakening pound makes shopping in the North cheaper.’ Photo: Brian Lawless/PA Wire
‘It is worrying for firms and retailers in border areas as a weakening pound makes shopping in the North cheaper.’ Photo: Brian Lawless/PA Wire

Colm Kelpie

George Osborne, the lesser-spotted UK chancellor, did his best yesterday to sooth the nerves of investors shell-shocked by the decision of UK voters to abandon the European Union.

Having gone to ground in the wake of the Brexit vote, a weary-looking Osborne took centre stage ahead of the opening of the markets, explaining that he had had weekend contact with the International Monetary Fund, the Bank of England and US Treasury Secretary Jack Lew.

Global stock markets plunged in the wake of the vote on Thursday - with the ISEQ, in particular, hammered - and the pound has tumbled against the dollar and weakened further against the euro. Osborne's comments had perhaps some impact, as the pound ultimately steadied.

But with potentially a full summer of political uncertainty ahead, that s unlikely to last.

And that's not good for us.

The collapse in sterling has been brutal and swift, hitting British savers and consumers in the pocket.

In November last year, €1 was worth 69p. Last week, as polls closed on Thursday evening, €1 was worth 76p. Now it's worth 83p.

But in the current climate, it's the least of Britain's problems.

For Ireland, it's top of the list.

A devalued currency is a good thing for businesses in the country of that currency.

It makes them leaner and more competitive.

The plunging pound is rough on British savers and holidaymakers, but it will be a boon to manufacturers there.

But for Irish firms that have enjoyed a sales boom since Mario Draghi started driving down the euro more than a year ago, the boot is now on the other foot.

The weaker euro last year gave a fillip to the Irish export market at a time when the economy was in recovery mode. It made products in non-euro markets cheaper and more attractive to prospective buyers.

A weaker sterling, therefore, is good for British businesses, but bad for the very many companies here operating in the UK market.

It is also worrying for firms and retailers in border areas. A weakening pound means it will be cheaper for shoppers to cross over into Northern Ireland to stock up on groceries or large consumer items.

The full economic implications of Thursday's decision will not be known for some time, but on the currency front in particular, businesses here are already feeling the heat.

And that is unlikely to change much soon. The absence of a strong, stable government in Britain will be felt in the markets as political turmoil not only engulfs the government benches, but also the opposition. David Cameron's successor may not be in place until October and only then will the starting gun be fired for the two-year (at least) negotiation period between the UK and the rest of the EU on what the post-Brexit world will look like.

With political unrest in Scotland over the outcome of the vote adding even more uncertainty, investors are likely to remain uneasy for some time.

Like his contemporary in London, Finance Minister Michael Noonan did his best yesterday to engender a sense of calm by stressing there was little panic in Ireland, the situation had been contained and the State was fully funded.

His intervention seemed to have little effect. The ISEQ closed down over 9pc in Dublin. The Brexit ill-winds have hit us fast and hard.

Irish Independent

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