The pound edges closer to parity with euro

THE sterling crisis notched up a gear yesterday, as the pound edged closer to parity with the euro, sinking to a record for the ninth day.

The British currency fell 3% to 95.5 pence per euro for the first time yesterday sparking outrage among business and tourism groups in Ireland.

Davy analyst Rossa White said it is disastrous news for Ireland’s indigenous exporters and for the tourism industry here. He said about 18% of Ireland’s goods exports and 17% of service exports go to Britain while British tourists account for 50% of visitors to Ireland.

A British government report yesterday showed Britain’s budget deficit widened to a record in November as tax revenue declined because of the worsening recession. A separate report showed mortgage lending fell 51% in November from a year ago.

“UK rates are going close to zero and the pound is going to suffer until we get there,” said Neil Jones, head of European hedge fund sales at Mizuho Capital Markets in London. “Parity with the euro is the next big psychological barrier.”

The pound has fallen 22% against the euro and the dollar this year.

“We’re seeing the sterling downtrend accelerate,” said Ian Stannard, a foreign-exchange strategist at BNP Paribas. “There is potential for further sterling weakness toward the parity level.”

NCB analysts said most Irish food and beverage groups face significant downward revisions to earnings as a result of the fall in sterling.

Taoiseach Brian Cowen said the British pound’s decline against the euro is posing a “major challenge” for Irish companies. Policies being pursued by the British government are having “adverse effects,” particularly on small businesses.

Britain is Ireland’s second biggest export market after the US and the pound’s decline is making Irish goods less competitive.

“It’s having an effect,” Mr Cowen said, adding he hasn’t discussed the matter with Gordon Brown.

“I’m not in the business of complaining about how other people do business.”

Also yesterday British retailers operating in Ireland refused to say they would immediately pass on savings to consumers.

Marks and Spencer said it will review the situation, but said that when setting its prices it has to take into consideration factors specific only to the Irish market such as higher rental, operational and employment costs.

Tesco also said it would in time pass on the savings but only as they “become available”. This means that the costs would need to be worked through the supply chain.

Dunnes Stores and Arcadia, the owner of Topshop and Dorothy Perkins both failed to return calls asking if they would immediately pass on the savings.