Sunday 22 September 2019

Irish exports under threat as sterling falls again

Agri-food sector at risk from decline

Mantra: UK prime minister Boris Johnson says he is prepared to leave the EU without a deal. Photo: PA
Mantra: UK prime minister Boris Johnson says he is prepared to leave the EU without a deal. Photo: PA

David Chance

A brief respite for the pound ended on Monday when the British currency resumed its decline against the euro, with UK prime minister Boris Johnson readying for his first meetings with the leaders of Germany and France by repeating London's new mantra that it was ready to leave the EU without a deal.

Sterling had staged a minor recovery last week with a 2pc gain helping it climb above 91 pence to the euro, as financial markets priced in a move to oust Mr Johnson and stop a hard Brexit by the opposition Labour Party.

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But by Monday, the mood had changed and the pound lost 0.3pc to trade at 91.56p.

"This recent sterling strength may well prove short-lived and we would see any further strength in the currency as opportunity for exporters to take foreign exchange risk out of their business, ahead of parliament resuming on the third of September, where the possibility of a no-confidence vote, and even a general election, will take market focus," said Philip Hartley, head of foreign exchange and emerging markets at Bank of Ireland Markets & Treasury.

The pound has fallen 1.75pc since Mr Johnson took office and by more than 16pc against the euro since the Brexit referendum. However, the impact on exporters here has not yet shown up in data.

The most vulnerable sector in the event of a hard Brexit is agriculture and food production, although the main impact will come from any new tariff regime once Britain is outside the EU trading bloc.

"Weak sterling is definitely a problem for Irish agri-food exporters, especially when sterling weakens towards 90p/€ and beyond, as it has at present," said Trevor Donnellan, head of economics at the Rural Economy Research Centre at Teagasc.

"When export contracts are denominated in sterling and sterling weakens sharply in a short period of time, this leads to a reduction in the profitability from those contracts for Irish exporters," he noted.

Data from the Central Statistics Office shows agricultural exports to the UK have held up despite the fall in sterling.

The biggest single item in agri-food exports to the UK is meat and the value in that sector stood at €149m in June this year, versus €143m in June 2016, the date of the referendum.

Investment bank ING expects the pressure to pile on the pound as the October 31 Brexit deadline approaches and its new forecasts, released on Monday, show the British currency at 95p to the euro in the third quarter of the year.

The outlook for the British economy is steadily turning darker and it contracted by 0.2pc in the second quarter of the year, thanks to the uncertainties over Brexit.

A leaked British government report on Sunday said 'no deal' could lead to months of trade disruptions that would hit food, medicine and fuel supplies.

Irish Independent

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