Irish blow as sterling set to dive after loss of AAA status
STERLING is expected to fall sharply this morning, as markets open for the first time since Britain lost its prized AAA credit rating.
Ratings agency Moody's on Friday cut Britain's rating to AA1, citing weak growth and further stagnation in the economy.
That decision sent sterling to a two-year low in late currency trading in New York, with the pound falling to €1.149, while it also fell precipitously against the dollar.
While the downgrade is primarily a political problem for UK chancellor George Osborne, it is expected to cause huge difficulty for Irish business.
The fall in sterling – it has lost about 10c against the euro in the past six months – shows no sign of abating, with several analysts forecasting the pound to eventually hit parity with the euro.
Gerard Lane, an equity strategist at Shore Capital in Liverpool, suggested the pound would continued to weaken.
"Sterling needs to fall to parity versus the euro and $1.35 to arrive at a 'fair' value . . . in order to rebalance the UK economy . . . and give our exporters a chance to grow," he said.
While that will be good for US exports, it could be dire for Irish firms selling their wares in Britain. The relative weakness of the euro since the crisis began five years ago has been a boon to Ireland, with exports repeatedly hitting record levels during that time.
Irish Exporters Association (IEA) chief executive John Whelan has repeatedly warned of the consequences if the euro was to get stronger against both sterling and the US dollar.
Last year euro's weakness added about €1.7bn to exports from this country, the IEA estimated. That is now set to be wiped out by sterling's fall and the single currency's recovery.
If sterling keeps losing value, it will contribute to a fall in British tourists coming to Ireland, which could have dire consequences for the hospitality sector.
Tourism Ireland chief executive Niall Gibbons said that while the exchange rate was a concern, there was little his team could do to control it.
"Great Britain is our largest and most important market, accounting for almost 50pc of all our overseas visitors and about 35pc of overseas tourism revenue.
"In recent years, a flat economy and weak consumer confidence in GB has had a significant impact on travel by Britons to all destinations, including to Ireland," he said.
"Value for money remains a key reason why people choose a particular holiday destination . . . Tourism Ireland marketing campaigns will continue to place emphasis on value for money that can be found in Ireland."