Brexit deal reaction: ‘It’s still not clear if what lies beyond is a smooth exit lane or an abyss’

Protestors outside Downing Street in Westminster, London yesterday as Prime Minister Theresa May was putting her Brexit plans to the Cabinet, 874 days after Britain voted to leave the European Union. Picture: Andrew Matthews/PA

The experts predict that a defeat may be snatched from the jaws of victory, with logic lacking in the Brexit negotiations. From local concerns to the international outlook, Eamon Quinn, Geoff Percival, and Pádraig Hoare report on this week’s Brexit progress.

There is no end in sight to the horror ride for sterling, Irish exporters, and the Dublin and London stock markets.

The warnings were first raised when the UK voted over two years ago to leave the EU.

This week’s breakthrough in the talks between the EU and the UK over the first of the separation terms have done little to boost optimism that any sort of hard Brexit will be avoided.

That’s because it is not clear whether British Prime Minister Theresa May can get the agreement through parliament.

Irish firms have much to lose. To the surprise of many, they navigated an unprecedented slump in the value of sterling against the euro since the June 2016 referendum.

Irish food firms, in particular, who employ large amounts of people, are in the frontline.

The IMF reminded the UK about the high stakes: It warned yesterday that a no deal would cost the country about 6% of its GDP. That would also mean a lot less business for Irish companies and exporters.

Sterling fell from 76p on the eve of the vote to trade as low as 91p in August. The scale of the slump could have wiped out the profit margins of many SMEs selling across the Irish Sea into Britain.

Stock-market companies, including Bank of Ireland through its tie-up with the British post office, building products firm Kingspan, Ryanair, and ferry group ICG, also have a lot to lose from any form of hard Brexit.

Their shares have already been hit hard by the drop in sterling because they have significant exposure to the UK market.

Sterling yesterday traded at 88.4p, and Irish shares had a volatile ride: ICG shares ended 2% lower, while Paddy Power surged 5%.

Fexco’s David Lamb summed up the feelings of uncertainty best: “After two years of potholed progress, Britain’s Brexit negotiations are approaching the end of the road. Expectations, and heartbeats, are accelerating — but it’s still not clear if what lies beyond is a smooth exit lane or an abyss.”

Irish business concerns

Edgar Morgenroth, professor at DCU Business School, and one of the country’s leading Brexit experts, said Irish business concerns over a hard Brexit will remain elevated.

A former associate professor at the Economic and Social Research Institute, Mr Morgenroth believes that time will have all but run out if the UK parliament rejects the agreement. He said the mooted deal last autumn should have been implemented to allow everyone time “to road test” and think through the North’s backstop for the prospective food and industry trade deals the UK plans to strike with third-party countries such as Brazil.

Seamus Coffey, chair of the budget watchdog the Irish Fiscal Advisory Council, said the outcome remains as uncertain as ever. “It’s too uncertain and too early to know the outcome,” he said.

Darren McKinley, senior equity analyst at Merrion, said the current deal would be the best outcome in terms of boosting economic growth in Britain and Ireland. But with the likelihood of the hard Brexiteers killing the deal, the chances have increased of the hardest of hard Brexits, in which the UK reverts to the World Trade Organisation trade regime.

That outcome increases the cloud over the shares of Irish companies and their shares which generate significant earnings in Britain, said Mr McKinley.

Economic uncertainty

Ibec chief executive Danny McCoy welcomed the progress but warned that “significant” hurdles remain. “An agreement that potentially keeps all of the UK aligned to the EU customs union will help minimise disruption to business.

“However, big political hurdles remain. Any political problems that emerge around ratification will heighten economic uncertainty and force more businesses to activate no-deal contingency plans,” he said.

Isme chief executive Neil McDonnell said a no-deal or hard Brexit will hit many Irish SMEs hard, including firms in the food, agri-business, and financial services industries.

“This is really just the W in the WTF (withdrawal, transition, and framework for future relationships). This is just the withdrawal aspect and the fear is it falls in the House of Commons,” he said.

“When you have pro-remainers on both sides opposing it, the deal looks very challenged. The question is whether there is anyone capable of doing a better deal than Theresa May has done and, even if so, could they do so before March 29 with House of Commons support? It is unlikely.

“Still, when the UK is staring down the barrel of a no-deal Brexit, what are its choices?”

Fexco Corporate Payments head of dealing David Lamb said that with the fate of the agreement going to parliament, sterling “is behaving like a cat on a hot tin roof — leaping to a month high on Tuesday before sagging on Wednesday as the DUP’s reservations about the government’s Brexit gambit emerged”.

Mr Lamb said that “traders who typically spend their days poring over economic data have morphed into political pundits” as views on the next UK rate hike take a back seat and markets try to guess how “the handful” of DUP MPs “will respond to what is being billed as the government’s final offer on Brexit”.

“After two years of potholed progress, Britain’s Brexit negotiations are approaching the end of the road. Expectations, and heartbeats, are accelerating — but it’s still not clear if what lies beyond is a smooth exit lane or an abyss,” he said.

Brian Keegan, director of public policy and taxation at Chartered Accountants Ireland, said: “The entire Brexit process has been bedevilled by uncertainty to date. While the events of the last 24 hours promise to bring some clarity to the future trading situation on this island, there is still not enough concrete information available to allow business to plan.”

Cork-based construction consultants Linesight regional director Niall Greene said the currency fluctuations will likely continue to affect the cost and value of goods and services flowing between Ireland and the UK.

“However, we continue to see a further positive uplift in potential investments from UK developers, funds and firms into the Irish market,” he said.

High level of uncertainty

A survey by Deloitte of chief financial officers (CFOs) across 20 European countries taken before this week’s political developments showed Irish CFOs rated the level of uncertainty at a high level of 71%, the highest of all European countries.

The Bundesbank added its own warning. It said banks can’t be complacent and must still be ready in case the UK fails to reach a divorce agreement with the EU, according to the German central bank’s vice-president Claudia Buch. “Each market participant should make sure that his or her business model is also sufficiently resilient with regard to a hard Brexit,” she told Bloomberg TV.

Local reaction

Cork Chamber public affairs director Thomas McHugh said: “The Cork business community is planning for Brexit, yet the current multiple scenarios make planning a challenge for small business in particular. We hope for increased certainty in the coming days.”

PwC Cork partner Ger O’Mahoney said: “The key point is that we simply need certainty now, whatever it is. The guillotine has to be brought down on all the talking and agreement made. We need something that gives business time to plan for the long-term.”

UCC economics lecturer Declan Jordan said: “This would actually create a soft Brexit and it looks like the EU is saving Britain from itself. But one thing absent so far in this entire process has been logic. I can see a defeat snatched from the jaws of victory. If this deal isn’t agreed, there will be a new referendum, a general election, or a hard Brexit — none are particularly appealing.”

‘No deal means free trade’

Leading business Brexit proponent Tim Martin, chairman of British pub group JD Wetherspoon, which has a number of bars in Ireland, insisted that a no-deal Brexit is the best option for Britain in striking trade deals with the rest of the world.

“If you take the decision to leave the EU, you have to opt for no deal. No deal means free trade. As countries like Australia, New Zealand, and Singapore have done, you can slash the 12,651 import tariffs on items like oranges, coffee, new world wine, and children’s clothes. This will reduce shop prices, making consumers better off — and the government loses no money since tariff income is currently sent to Brussels.”

He continued: “Another big advantage is regaining control of fishing, helping coastal towns. By doing this, under WTO rules, imports from Ireland and other EU countries would continue to be tariff-free. Theresa May, who never wanted to leave the EU, is getting tied up in knots in negotiation. Wetherspoon`s decision not to sell Guinness in Ireland is a good model — stay friends, don’t negotiate, go your own way.”

Dermot O’Leary, chief economist at Goodbody, said: “We get the impression that there is plenty more to play out, with an agreed deal, no deal, and another referendum all being possibilities. It’s too close to call between these three.”

He warned: “If the view is shared by a majority of the UK parliament, the current deal being voted through is very difficult to see.”

Chris Beauchamp, chief market analyst at online broker IG was more upbeat: “UK investors and many around the globe will be transfixed by the Brexit drama, as a new chapter unfolds. Theresa May must now get her cabinet into line, a simple task perhaps when viewed alongside the need to get the deal through parliament. But those predicting her demise have been wrong repeatedly over the past two years, and may well remain so.”

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