Sterling plunge after Brexit announcement ratchets up pain for Irish firms
And major surveys of Irish and UK published yesterday also showed the diverging paths of their manufacturing firms following the plunge in the value of sterling since the Brexit vote on June 23.
The Investec Ireland Purchasing Managers Index showed Irish manufacturing growth was almost at a standstill in September.
Its main overall reading at 51.3 was barely above the 50 level that marks the pivot between expansion and contraction, while new hiring fell for the first time in over three years.
“All in all, the above does little to change our narrative from the previous month, namely that working capital management – joined in September by a more cautious approach to hiring – points to well-founded caution on the part of Irish manufacturers as we head into the year-end,” said Investec Ireland chief economist Philip O’Sullivan.
In contrast, UK factories had their strongest month in more than two years in September, according to an equivalent survey of British firms, as UK export orders surged.
Sterling yesterday approached the three-decade low set in the days following the Brexit referendum following the comments by Ms May she’ll begin the process of withdrawal from the EU in the first quarter of 2017.
The UK currency dropped to the weakest level since July 6, the day it reached its 31-year low of $1.2798, and slipped against all but one of its 31 major peers. Hedge-fund data showed speculators raised bets that the currency would fall.
Against the euro, sterling slumped almost 1% to 87.4p.
That marks a huge retreat from the level of 76.5p on the eve of the referendum and from the 70p level of late last year.
The sudden slump in sterling makes it more difficult for Irish firms – and for small Irish companies, in particular – to compete effectively when they sell goods and services into Britain.
In contrast, UK manufacturing companies now find it easier to sell abroad.
Alan McQuaid, chief economist at Merrion Capital, predicted sterling would not weaken much further from the current levels against the euro.
He said that ahead of next year’s elections in Germany and France that sterling could rally because the votes may bring into question again the future of the EU.
Consumer sentiment in Ireland was largely unchanged in September, a survey by KBC Bank Ireland and the ESRI found.
However, a separate survey showed confidence among business owners in Dublin contracted for the first time in four years, according to the Dublin Chamber of Commerce.
Ms May told delegates at her Tory Party’s annual conference that she’ll curb immigration, stoking speculation the UK is headed toward a so-called hard Brexit – with limited access to the EU’s single market.
“Hard Brexit is a sell for the pound,” said Neil Jones, head of hedge-fund sales at Mizuho Bank in London.
“I know the government line is that they don’t see a need to differentiate between hard and soft Brexit, but the market certainly does.”
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