‘Britain should receive sterling warning’

ECB president Jean-Claude Trichet should issue a warning to Britain to halt its “orderly” devaluation of sterling, according to one of the country’s top economists.

Dermot O’Leary of Goodbody Stockbrokers said the devaluation of the British pound has been carefully managed over the past nine to 12 months and it is time ECB president Jean-Claude Trichet issued a statement on the subject.

Mr O’Leary said: “The ECB is known as ‘the guardian of the euro’, so it would be important for President Trichet to make some sort of verbal intervention.

“It is in Britain’s interests to let its currency continue to fall. The only reason a problem would occur for the UK would be any rapid fall. However, it has been quite orderly.

“With little in the way of verbal intervention from UK policymakers, it is clear that they are happy to allow the currency to decline, as it is part of the process of stimulating the economy back to growth and rebalancing the economy away from a dependence on domestic demand towards net trade,” he argued.

Sterling hit 94p relative to the euro at one stage yesterday, before edging back closer to 93p.

Sterling has fallen by 6% relative to the euro in the past month alone, by 17% this year, and by 21% since the end of 2008.

“The biggest problem for Ireland has been the food sector,” he said. “Margins are being squeezed. A lot of Irish food businesses are either restructuring or closing down.

The Goodbody stockbroker welcomed Mr Trichet’s direct comments when he signalled that the ECB would keep interest rates at a record low to stimulate growth. However, those ECB comments came on foot of the euro having risen 18% against the dollar since February.

“The ECB is primarily focused on the dollar,” noted Dermot O’Leary.

“President Trichet talks about the eurozone area as a whole, and the US market is far more important to the central bank than sterling. For Ireland, our relationships with the dollar and sterling are both important, though many Irish exports to the US stem from US multinationals, which are mostly priced in dollars.

“The euro has gone higher against sterling before, than where it is now. The important question is trying to gauge the length of time it stays up there.”