Monday 14 October 2019

Sterling rebound could wipe out wage rises here

  

Stock image
Stock image

David Chance

The uncertainties around Brexit have hit the value of the pound hard and cut the rate of inflation here as a result but new figures show a rally in the British currency to pre-referendum levels would hit consumers hard in the wallet.

The uncertainties around Brexit have hit the value of the pound hard and cut the rate of inflation here as a result but new figures show a rally in the British currency to pre-referendum levels would hit consumers hard in the wallet.

An analysis published today by the Economic and Social Research Institute (ESRI) showed that the July consumer price index (CPI) would be 2.1pc points higher than the 1.1pc recorded had the pound traded at the 78p to the euro level of May 2016, before the Brexit referendum.

"If the strong sterling seen pre-financial crisis still prevailed, then CPI would be 4.9pc higher, while if there was parity between the two currencies then the CPI would be 2.1pc lower," the ESRI said in its 'Quarterly Economic Commentary'.

With wage rises running at 3.5pc annually in the second quarter of this year, any snap back in sterling to pre-referendum levels or stronger would effectively wipe out wage gains here.

The ESRI's methodology excludes other effects, such as the impact of any new tariffs that would come into place if the UK left the EU.

It said that goods from the UK made up over 20pc of the total value of Irish goods imports and an appreciation in the euro against the pound, which makes these imports cheaper, was likely to affect the overall rate of Irish inflation.

"It may be the case that a supplementary Budget is required early in the new year if external conditions change substantially," the ESRI said.

Irish Independent

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