It's simple: Parity against sterling at 100p means Irish firms shut down

PETER BROWN: It's simple: Parity against sterling at 100p means Irish firms shut down

Putting it plainly, sterling falling to parity at 100 pence to the euro would mean many Irish businesses would be forced to shut down.

A further sharp fall from 91.25 pence in the run-up to the Halloween deadline on top of the slide from 72 pence since the summer 2016 referendum, would be disastrous.

Many businesses here which survived the initial slump in sterling may not survive another.

We are in unprecedented times and not just with the exchange rate. I have been in the market since the early 1980s and many major global events have taken place.

Yes, sterling has been lower than current levels but only during short-lived downward spikes. And they weren’t packaged with all the other substantial challenges a no-deal Brexit will create.

This toxic combination could be worse for the Irish economy than the banking collapse in 2008. It will be the sheer confusion that causes the most trouble.

There will be chaos leading up to the deadline day of October 31, and also afterwards, if there is a no-deal outcome. That’s when the euro could hit parity with sterling.

Since the referendum in 2016, I have thought there was no way a no-deal exit would come about. Nobody, surely, is so stupid to pursue a path so dangerous anduncertain that it puts at risk thousands of jobs and the future stability of the UK itself.

Unfortunately, in Boris Johnson and his chief adviser Dominic Cummings, we have a buffoon and aseriously dangerous power-hungry individual who has no empathy.

The spin from Messrs Johnson and Cummings is mind-boggling: Tax cuts for the rich, billions spent on civil servants to ensure a no-deal Brexit goes “smoothly”, and new prison places supposedly to reduce crime. It is new politics learned at the feet of Donald Trump.

And of course, they promise a new trade deal with the US in extra quick time —despite the US having Britain over a barrel.

A weak country desperate for a trade deal in the trusting arms of Mr Trump, the president who is imposing tariffs on half the world.

Luckily, there are people in Britain who are willing to fight hard to avoid a no-deal outcome in favour of a negotiated exit. Former Tory chancellor Philip Hammond has laid down a marker he will fight all the way to avoid a crash-out Brexit.

It's simple: Parity against sterling at 100p means Irish firms shut down

There is no doubt that a bad Brexit will seriously damage many parts of the Irish economy. Britain will not get its new trade deals instantaneously, for instance, the EU and India have been negotiating a free trade agreement since 2007. Talks stalled in 2013 after 16 rounds, only resuming in 2018.

And amid the Brexit threat, we are most likely heading into a global recession. Germany is already effectively in recession and the US is heading headlong into one too.

Interestingly, sterling last faced huge pressure in 1985 but a serious depreciation of the dollar the same year allowed the UK currency to bounce 40%. This time we are going to see rates cuts in the US and Europe which may weaken other currencies and allow sterling to appreciate, regardless of the effects of Brexit.

We also have to take into account the many trades speculating that sterling will fall. These will unwind at some point and that means a lot of buying. So despite all the bad news, I would not be a seller of sterling just yet. The medium-term outlook for sterling is not that bad.

Between now and October 31 will be a hell of a ride but for those exposed to sterling weakness now may not be the time to panic.

Peter Brown is co-founder of Baggot Investment Partners, at pbrown@baggot.ie

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