A surge in the value of sterling against the euro on increased speculation that a UK rate hike is looming has for the time being eased fears about the fallout of Brexit boosting cross-border shopping and disrupting the economy.
Comments by Bank of England policymaker Gertjan Vlieghe about an early UK rate hike came a day after a surprise hawkish tilt in the language used by the central bank.
Sterling soared against the dollar and climbed at one stage by over 1% to 88p against the euro.
After falling to 92p in recent weeks, sterling’s renewed strength will help ease some fears of small Irish exporters who sell goods and services across the Irish Sea.
It may also quell official concerns about the prospects of a cross-border shopping sales splurge over Christmas.
Presenting new GDP figures, CSO officials highlighted the currency effects that put the breaks on the sale of new cars in the Republic since the UK voted to leave the EU over a year ago.
They said a drop in personal consumption in the second quarter probably reflected an increase in cross-border shopping as consumers and business tapped the benefit of weakened sterling.
Industry and exchequer figures have shown for some time shoppers were buying cars in the North and in Britain, as sterling slumped.
The statisticians said however, the consumption of many goods and services, including food and medical products had risen.
GDP grew 1.4% in the second quarter and increased 5.8% from a year earlier and the gains were spread across most parts of the economy.
“The numbers are positive for most sectors. There are some negatives of course. Personal consumption was down because of sterling but that may change with the improvement in the currency in the last few days as the Bank of England appears to be set to raise interest rate before year end,” said Alan McQuaid, chief economist at Merrion Capital.
Because of the currency headwinds, exporters still face the largest challenges, he said.
Despite this week’s gains, sterling is still trading 15% lower against the euro since before the UK referendum in June last year.
Dermot O’Leary, chief economist at Goodbody said that despite unspectacular growth in consumption that construction “continued to power ahead”.
However, the picture on exports and imports continued to be blurred by the activity of the multinationals, he said.
Figures on investment have been affected by a high level of volatility as multinationals imported huge levels of intellectual property rights into Ireland, as they rearranged their global tax affairs in recent years.
The sharp fall in GNP, down 4.6% in the quarter —reflected multinationals repatriating profits to their overseas’ owners.
Against the dollar, sterling climbed to the highest level against the dollar since just after the Brexit vote and UK government bonds tumbled after the Bank of England’s Vlieghe stoked speculation of an interest-rate increase within months.
Sterling surged past $1.36 after Vlieghe, considered a dovish monetary policy voter, turned hawkish to tell a conference the moment was approaching for a rate hike.
* Additional reporting by Bloomberg
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