Exports could be hit as sterling starts to lose gains against euro

IRISH exports to Britain could come under renewed pressure as sterling starts to lose the major gains made since March.

Sterling gained 11% against the euro in the period from March 19 to the first week in August, as the euro fell from 95p to 84.3p. This took a lot of pressure of Irish exports that have maintained a reasonable performance this year.

Fears of a slump in the British economy have put fresh downward pressure on the currency which has started to lose ground to the euro which was back up at more than 86p yesterday.

Those concerns were sparked by comments from the Bank of England governor Mervyn King.

His recent warning of continuing weakness in British output ended one of the strongest sustained rallies by sterling for some time. The British authorities have pumped substantial funding into the economy in recent weeks to help boost demand.

Warnings by Mr King that the recession would last longer than previously thought has increased fears that the economy there will take longer than many expected to get back into recovery mode, analysts said.

Against the dollar, sterling had shot up by more than 23% between March 10 and August 5 in the strongest increase by the currency since 1985.

Some of that gain has been reversed in the past week, however, and international economists are forecasting a sharp reversal in the currency’s fortunes.

Simon Fullam, an economist with Ulster Bank, does not share that pessimism.

At the start of the year when the euro was worth 98p, he forecast the euro would weaken to 80p by the year end.

“I see no reason to change my view at this stage of the year,” Mr Fullam said yesterday.

The British economy “will do better than the eurozone economies this year” despite the current hiccup, he said.

That will inevitably lead to a strengthening of the British currency that should give some comfort to Irish exporters still struggling to cope with the banking crisis and to fund their businesses in a very tough global environment, he said.

Other economists are less bullish. “I’m super-bearish on the pound,” Hans-Guenter Redeker, the London-based global head of foreign-exchange strategy for BNP, told Bloomberg.

“The Bank of England has made it clear it can’t afford a stronger currency,” he said.