Sterling soared against the euro and the dollar as fears that the UK will crash out of the EU receded. However, Irish analysts warned that the prospects of the UK having an accidental crash-out could not be ruled out, as London published the tariffs on the goods it imports from the EU, in the event of a no-deal Brexit.
Sterling climbed 1% against the euro and the dollar -- a significant gain for any major currency. It traded at 85.53 pence as MPs prepared to vote on ruling out crashing out of the EU, at the end of the month. Professor Edgar Morgenroth at DCU Business School criticised London’s list of tariffs in the event of a no-deal Brexit as “a political smokescreen” in its blame game with Brussels.
He said the plan, which would permit non-tariff trade between the two parts of Ireland but impose huge tariffs on EU-wide imports into Britain, was not “a credible plan” because it would necessitate long customs checks at Belfast and Larne, or at Scottish ports, to impose tariffs for all-Ireland trade into Britain.
“It is trying to attach blame to the EU for a hard border. It’s a highly political document which seeks to hide their blame, that they are going to be the cause of a hard border,” Mr Morgenroth said. He also believed that the tariff plan that reverts to World Trade Organisation rules would be illegal under that organisation’s rules. The UK tariffs range from between 10% to 16% on imports of car vehicles at the British border, but not on car parts, and foresee significantly higher tariffs on food imports, which would likely have huge effects on Irish farmers and producers.
John Whelan, managing partner at the Linkage-Partnership, said large food producers with plants in both the UK and Ireland would probably operate so-called transfer pricing between their operations and continue to trade.
“It is the smaller companies who will definitely lose out,” he said, citing small Irish cheese and yoghurt producers which rely on selling into Britain. However, Aidan Flynn, general manager at Freight Transport Association Ireland, said the publication by the UK highlighted the difficulties that involve agri-foods when the UK and the EU eventually discuss a full customs deal in the future.
Fitch Ratings said Irish lenders would likely absorb shocks from a no-deal Brexit even as SMEs exposed to the UK have been forced “to cancel or postpone investments”. Capital Economics in London said that in the event of a no-deal on March 29 that sterling would fall against the euro, and said that the Irish stock market would be badly hit.
Sterling’s gains were spurred earlier by a BBC media report that UK Attorney General Geoffrey Cox had further legal advice which might help Theresa May. Market reaction to UK Chancellor Philip Hammond’s Spring Statement was broadly muted despite a downgrade to the UK government’s economic growth forecast for this year to 1.2%.
“The potential delay of Brexit is what is helping to hold up the pound, but by the same token, the uncertainty is limiting its upside potential,” said Fawad Razaqzada, a market analyst at Forex.com. Most economists anticipate Brexit will be delayed by a few months with the two sides eventually agreeing on a free-trade deal, according to a Reuters poll.