Saturday 16 December 2017

Irish exporters face fallout from 'bleak' UK consumer spending

British Prime Minister Theresa May leaves Downing Street. Photo: Reuters
British Prime Minister Theresa May leaves Downing Street. Photo: Reuters
Colm Kelpie

Colm Kelpie

Consumer spending in the UK fell for the first time in almost four years last month, signalling shoppers are growing more cautious and adding to fears that the economy there is cooling.

If British shoppers buy less, buffeted as they are by rising inflation, that's bad news for Irish exporters selling their wares into the UK market.

Business here is already struggling with the weaker pound, which slipped further yesterday to more than 88 pence versus the euro.

Businesses in the agri-food sector and those in Border areas have been hit particularly hard by the slump in the value of the pound in the wake of last June's vote.

The survey by Visa was carried out prior to the general election last week which returned a hung parliament and injected another layer of political uncertainty into UK politics with just days to go until the scheduled start of formal Brexit negotiations.

UK Brexit Minister David Davis has said those talks will most likely be pushed back from next Monday's planned start, but would still begin next week.

Confidence among consumers could now take a further hit in the wake of the poll result and the impending fraught Brexit process, experts believe.

"The outlook for consumer spending continues to look relatively bleak, with households facing faster increases in living costs and muted wage growth," said Annabel Fiddes, an economist at IHS Markit, which compiled the data for Visa.

"The squeeze on household finances is likely to get worse as the Bank of England forecasts faster increases in consumer prices in the coming months."

The UK accounts for around 14pc of Ireland's exports, but the figure is much larger for specific sectors. About 40pc of Ireland's food and drink exports are sold into Britain, so any slowdown in terms of consumers' willingness to buy those products could prove a significant blow to producers here.

Brexit has already had an impact, as goods exports plummeted by almost half a billion euro last year, on the back of the Brexit-induced weakness in the pound.

Sterling weakened again after last week's inconclusive election result and businesses have said the election result risks paralysing the government at a time when it is meant to be negotiating a smooth exit from the European Union.

Retail sales in the first three months of this year suffered their biggest fall since 2010. Data published on Friday showed industrial output and construction faltered again in April. Car sales have also weakened.

Ratings agency Standard & Poor's has said last week's election result will hurt economic growth, and will not necessarily mean a softer Brexit.

"In terms of the outlook for growth, it's clear that things are not going in the right direction," said Jean-Michel Six, chief economist for Europe, Middle East and Africa.

He said that the strong growth in the second half of 2016 was likely to have been a blip.

He said the latest bit of instability can only weaken the business environment and consumer confidence.

"I think it's much too early to say that the result of the elections ... should lead to a soft Brexit rather than a hard Brexit," he told the AJEF association of financial journalists in Paris.

"On the contrary, I think it's possible to imagine a scenario, likely but not certain, in which Mrs May seeks to push for a very hard line towards the EU to show to her own party that she's holding the course."

Ratings giant Moody's, however, took a different view.

It sees the result of the UK election pushing Theresa May towards a softer Brexit that could see the country having some form of access to the single market.

"Overall, we believe that the election outcome will hamper Brexit negotiations and increase fiscal risks, and therefore be negative for the UK's credit profile," said Kathrin Muehlbronner, senior Moody's vice President.

"However, the Conservative Party's reduced share of the vote may indicate a higher likelihood that a 'softer' form of Brexit might now be pursued, involving compromises with the EU that Ms May would not have countenanced previously, and which would be positive."

Irish Independent

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