Investors weigh prospects for Irish shares under probable new hard-Brexiteer British prime minister

The fall of Theresa May pushed sterling slightly higher, but only after the currency had fallen sharply in the past week on the prospect her probable successor, hard Brexiteer Boris Johnson would drive Britain out of the EU without a deal.

Irish shares, whose pound earnings in Britain expose them to a weak pound, also took a breather following sharp losses, as investors weighed the likelihood of the elevation of Prime Minister Johnson in the upcoming Tory Party contest.

The yield on the UK 10-year gilt fell to 0.95%, as the chances rose the Bank of England would cut British interest rates to help insulate the British economy from the economic damage should Ms May’s successor choose to crash the UK out without a withdrawal deal later this year.

The probability of a UK rate cut by the end of the year rose sharply, according to financial market bets, as the fears over a no-deal Brexit come back on the agenda.

The news Ms May will resign on June 7 “means that the Bank of England may soon have to navigate the [UK] economy through even choppier political waters,” said Paul Dales, UK chief economist at Capital Economics.

He said the betting odds have placed Mr Johnson as a clear leader ahead of Dominic Rabb, Jeremy Hunt, and Michael Gove as the next prime minister in their party contest, by the end of July.

“But at this stage, nothing should be taken for granted...As such, the risks are shifting away from our ‘deal by 31st October’ scenario for the economy and towards another delay or our ‘no deal on 31st October’ scenario,” Mr Dales said.

Lee Evans, head of foreign exchange and strategy at Bank of Ireland’s markets and treasury division said, predicted uncertainty will continue to hit UK financial assets and affect Irish business.

“This latest development is likely to have a negative impact on the currency; the uncertainty of who will lead the UK government along with a Brexit deal seemingly as far away as ever is likely to put pressure on the pound in the coming weeks and months,” he said.

Against the euro, sterling ended slightly higher on the day at 88.36 pence but has weakened from 85 pence from late April.

In Ireland, business groups stepped up their warnings over a no-deal Brexit.

“Unless all sides agree upon a plan, Britain leaves the European Union with a no-deal Brexit by automatic operation of the law on 31 October,” said Chambers Ireland chief Ian Talbot, and he urged Irish firms to continue to plan for a no-deal outcome.

Ann McGregor, chief of the Northern Ireland Chamber, said the next UK leader “must work to avert a messy and disorderly exit from the EU”.

Bank of Ireland shares rose slightly, by 0.5%, to €4.86.

Its large lending operation through the UK post office exposes it to sterling weakness when revenues are translated to the euro, and its shares have slid from €5.40 in the past week.

AIB shares rose 0.75% to €3.85 but have fallen from €3.99 in the week, while Permanent TSB shares gained 2% to €1.32, but have slid from €1.39 in the same period.

Reflecting an assessment of companies relatively better placed to weather any Brexit disruption, Kingspan shares rose 0.5% to €44.74, little changed from levels a week earlier.

Despite the rise in sterling, the Ftse-100 in London rose 1%, while the Euro Stoxx index of 50 leading eurozone shares gained 0.75%.

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