Saturday 18 November 2017

Pound set to slide so 'prepare for worst', firms told

(Stock image)
(Stock image)

Gretchen Friemann and Sean Duffy

Sterling is tipped to weaken further against the euro, piling pressure on exporters, after Britain launched formal divorce proceedings with the EU.

The Small Firms Association yesterday warned Irish business to "prepare for the worst" including currency volatility, export barriers and price hikes, as the UK formally triggered exit talks with the EU.

On the markets the pound confounded negative expectations, despite falling in early trading - a move many in the market attributed to a bout of profit-taking from investors.

The euro closed at around 86 pence yesterday, but analysts say the outlook is for further sterling weakness.

Yesterday brought hard evidence that currency moves are hitting the Irish economy. Trips to Ireland from the UK decreased by almost 6pc in the three months to March of this year, according to latest data released by the Central Statistics Office(CSO).

Tourism Ireland told the Irish Independent that the figures bear out a trend reported by hoteliers and visitor attractions across the country in recent months.

"Since the UK referendum on Brexit, the drop in the value of sterling has made holidays and short breaks here more expensive for British visitors," said Niall Gibbons, CEO of Tourism Ireland.

"Economic uncertainty is making British travellers more cautious about their discretionary spending, which is impacting on travel to Ireland," Mr Gibbons added.

Alan McQuaid, chief economist at Merrion Capital, said the pound could return to levels last seen in October when it sunk to 90p against the euro, a level that precipitated a crisis in the mushroom sector.

Mr McQuaid said technical dynamics could propel sterling higher in the short-term but warned of impending volatility as the two sides head to the trenches for tortuous negotiations.

If news on the progress of negotiations leaks into the public domain he believes there could be "quite volatile moves on any given day".

Cantor Fitzgerald's David Donnelly also sees sterling weakening to the 90p level.

"They will work hard to avoid a cascade effect on the peripheral economies", he said.

Mr Donnelly said sterling has borne the brunt of investor sentiment about Britain's departure, rather than equity or bond markets.

Uncertainty about the outcome of Brexit prompted a relatively sanguine view from David Lamb, head of dealing at Fexco Corporate Payments.

He stressed there was little likelihood of a return to the wild gyrations witnessed in the aftermath of the referendum result last summer when sterling hit 92p against the euro.

He said sterling could reverse its losses, given the resilience in the UK economy recently. While he emphasised all predictions about of Brexit are "conjecture", he downplayed the possibility of a victory by Marine Le Pen in upcoming French elections.

Investec's Justin Doyle warned of the catastrophic consequences of such an outcome, claiming markets would view a Le Pen triumph as a vote to leave the eurozone.

But he claimed any material impact on sterling is unlikely to register until trade talks begin in the summer.

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