Brexit prompts largest drop in optimism since 2010

The drop in sterling following the UK decision to leave the EU is now the main risk facing the Irish economy and has led to the sharpest fall in business sentiment since the dark months before the bailout in 2010, according to a major survey of business confidence.

Since the unexpected outcome of the June 23 vote, sterling has slumped 13% against the euro, making it more difficult for all types of Irish businesses who employ tens of thousands of people to sell their goods and services profitably across the Irish Sea.

The relatively high level of sterling ahead of the referendum – the UK currency was trading as high as 69 pence against the euro nine months ago – helped provide a significant boost to the economic recovery here and persuaded small exporting firms in particular to hire more staff.

Irish businesses are a lot less optimistic but are still hiring and are not in “panic” mode as a result of the Brexit vote.

The survey by KBC Bank Ireland and Chartered Accountants Ireland said that Brexit, along with other concerns about world demand and the political instability at home, has led to the sharpest drop in sentiment since the third quarter of 2010.

But business activity this summer was still growing and there was no return of the confidence slump posted during the crisis, despite the sharp drop in business sentiment.

Instead, the economy will likely grow this year though at the much less robust pace of 3.5% to 4%, said Austin Hughes, chief economist at KBC Bank Ireland.

The optimism of food firms has fallen the most, while business services and consumer-focused firms were also less confident than surveys before the Brexit vote. Only 2% of firms said, however, they would plan to relocate operations to the UK following the vote.

And over 31% of companies still expect to increase employment and, at 8%, only a small percentage of the survey expect to cut staff.

“The proportion of respondents seeing downside risks to their businesses increased to 49% in the current survey from 39% previously. This suggests a significant but not catastrophic deterioration,” the survey found.