Businesses in the North can still gain a Brexit boost

Businesses in the North can still gain a Brexit boost

Immediately after the crushing loss of over 1,000 local election seats by the Conservative Party last week, sterling strengthened to its best in over 12 months pushing the euro down to and taking some of the pressure off hard pushed Irish exporters to the market.

A bird never flew on one wing and the momentum for the pound was assisted by positive comments from Bank of England governor Mark Carney, who seemed to have his own crystal ball indicating positive prospects for a Corbyn/May deal.

Exactly when the British prime minister will step down and who will replace her, seems to have been swept aside for the moment.

In an upbeat set of forecasts, Mr Carney upgraded the Bank's expectations for Britain's growth, saying unemployment will fall further and the economy will generate more excess demand than previously predicted.

The forecast for UK GDP expansion this year was lifted to 1.5% from 1.2% because of a stronger first-quarter performance as companies stockpiled for Brexit.

However, many economic commentators are forecasting a weakening of sterling as political uncertainty is expected to accelerate the flight of capital from the UK across the second half of 2019.

The big question for Irish business is how to plan a stable business strategy in this swirling mix of currency movement, trade tariff expectation and regulatory uncertainty.

The wisdom of Solomon will, undoubtedly, be called upon by many executives as they attempt to sort out the best short-term strategy without overwhelming the long-term business fundamentals.

If Jeremy Corbyn’s Labour Party fails to do a deal with Ms May’s divided Conservative Party, then it is highly likely that a no-deal exit from the EU by the end of October will occur ,with the consequent turmoil for trade and public alike.

The Bank of England has, in the past, nailed its colours to the mast forecasting a drop of 15% to 25% in the value of sterling in the event of a no-deal Brexit.

The impact on the profit margins of Irish exporters would be severe in the longer term if the low value of sterling remained.

In the short-term, most exporters will have covered their exposure with forward contracts with their banks until the end of the year.

Tariffs will be re-introduced once the UK leaves the EU single market, which would see tariffs of between zero and 3% on most exports from Ireland to the UK, the exception being the agricultural sector which could face tariffs of 30%-40% in a no-deal Brexit situation.

However, the British Government announced last year a temporary tariff regime would be put in place for a 12-month period which would keep tariffs the same as currently in place.

This will give some comfort to the Irish agri-food sector , while the UK Government completes trade deals with the EU and other countries and finalises a long-term tariff regime.

The fly in the ointment is that the EU has not announced any contingency measures for the purposes of making tariff adjustments to reciprocate or lighten the customs and regulatory issues associated with a no-deal Brexit.

However, if the Bank of England’s predictions are correct, then UK exporters will have the benefit of a low pound to off-set any tariff increases on leaving the EU.

The elephant in the no-deal Brexit room is the North's trading, social and political situation.

The local election results which saw Arlene Foster’s DUP increase its share of the votes, will serve to re-enforce that party's hard stance on a Brexit deal that includes the 'back-stop' solution.

The irony of the situation is that the back-stop offers the North a customs union between the EU-27 and the UK without the UK being in the single market.

This would give businesses in the North a competitive edge over those in other regions of the UK - namely Scotland, Wales and England.

Being able to ship free of tariff and customs barriers into the Republic and across the rest of the EU, while the rest of the UK had blockages on order fulfilment and shipments, would undoubtedly give the North the shot in the arm that it may badly need to overcome the loss of Bombardier and the expected closure of its five plants, and the impact on the many sub-suppliers that rely on contracts with them.

John Whelan is managing partner of international trade consultancy The Linkage-Partnership

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