Full-blown sterling crisis immediate threat to Ireland before Halloween crash-out

Full-blown sterling crisis immediate threat to Ireland before Halloween crash-out

A full-blown sterling crisis threatens Irish prosperity well before the end of October when the new London administration has threatened to take Britain out of the EU without a deal, economists and business groups have warned.

It comes as an effective run on the pound dragged the currency lower by a significant 0.6% to 91.71 pence in the latest session, adding to the pressure on the currency since Boris Johnson was installed as the new British premier last week.

The slump in the value of sterling will immediately increase the pressures on Irish exporters selling into Britain because it makes their good and services potentially unprofitable.

And leading economists Jim Power and Alan McQuaid have separately warned that the fallout from the risk of a no-deal Brexit will hit Irish households and firms here well before the Halloween deadline for a deal set by Mr Johnson.

"Once sterling goes over 90 pence, it starts exerting pressure," said Mr Power. "The impact with a sterling crisis is felt within weeks and not months," he said.

A sterling crisis is bad for the Irish economy and agricultural food firms as well as the Irish banks that lend to companies across the economy, he said, with the effects most felt in large parts of the countryside outside Dublin, Cork City, and Limerick which are "somewhat" insulated by the multinationals based in the cities.

Mr McQuaid said that "many counties will be in deep trouble" under a no-deal Brexit at Halloween.

Meanwhile, the Irish Exporters' Association (IEA) warned about the immediate fallout from sterling's slump.

We note with deep concern the trajectory in the euro-sterling exchange rate over the past 36 hours. The profitability of Irish companies exporting to the UK is heavily dependent on the exchange rate – particularly at these levels.

"This recent sharp adverse movement, caused by the increased likelihood of a no-deal Brexit, is a serious threat to many Irish exporters if not sufficiently recognised, managed and mitigated," warned Simon McKeever, chief executive at the IEA.

The IEA said the sterling crisis calls for exporters to the UK to reassess their exposure to the drop in the currency.

Lee Evans, head foreign-exchange strategist at Bank of Ireland Treasury said all eyes will be on sterling in the coming days.

"Reports over the weekend that the UK government is stepping up its planning for an exit in October has seen euro-sterling trade towards 92 pence; the next levels of focus for currency markets are the August 2017 high of 93 pence and the 2016 ‘flash crash’ high of 94 pence," he said.

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