Exporters to suffer as UK says growth has weakened
WEAKER-than-expected growth in the UK market and a faster rise in German inflation means further challenges ahead for Irish exporters.
Selling into the UK market is set to become even more difficult after Bank of England governor Mervyn King warned that growth in that economy next year was likely to be lower than previously expected.
In a press conference yesterday, Mr King said the British economy had weakened since May, with manufacturing output down in June.
He warned that growth would be 1.5pc instead of 1.8pc in 2012. Inflation remains high at 5pc, however.
The downbeat assessment will keep pressure on sterling in money markets, and a weaker UK currency means lower incomes for Irish exporters selling goods in the UK market. A shrinking economy also makes it harder to make sales.
The UK central bank said the debt crisis rocking the eurozone is now the biggest threat to their economy. It said the crisis could hit trade into eurozone economies as well as the exposure of UK banks to assets in the region.
"There are a number of headwinds to world and domestic growth over the forecast period, not least the private and public debt overhang," Mr King said.
"These headwinds are becoming stronger by the day."
Meanwhile, inflation in Germany rose at a faster pace in July, thanks to rising energy costs.
Inflation in Europe's biggest economy rose to 2.6pc last month, up from 2.4pc in June. Prices in Germany were up a half a per cent in July compared with June, the fastest rise since March.
The European Central Bank kept interest rates unchanged this month -- thanks largely to the debt crisis.
If costs continue to rise in Germany, however, the bank could see raising interest rates as the best way to contain the trend.
"So far energy prices have mainly driven inflation, but we possibly have seen the peak in oil prices," said Arnd Schaefer, an economist at WestLB AG in Dusseldorf, Germany.
"While inflation may trend lower, it is likely to stay above the ECB's comfort zone for the remainder of the year."
The volatility in the markets and mixed signals mean it is increasingly difficult for outward-facing Irish businesses to predict price movements in everything from currencies to oil prices. (Additional reporting Bloomberg)