Hard Brexit to ratchet up ‘stress’ for Irish firms

The renewed slump in sterling is hurting key Irish businesses hard as the turmoil caused by the uncertainty of the UK’s new relationship with Europe will persist for a long time, analysts here have warned.

Hard Brexit to ratchet up ‘stress’ for Irish firms

The UK currency fell again yesterday, touching almost 88p, its lowest level against the euro since early November amid a sell-face as UK prime minister Theresa May later today outlines her government’s plans over the divorce talks with the EU.

Any hard Brexit outcome would damage the economy here, north and south.

Economists say that Irish tourism, as well as agri-food industries, will start to hurt at these exchange rate levels because fewer British tourists will likely travel across the Irish Sea, while selling goods and services into Britain for Irish firms becomes less profitable as sterling slumps.

“At current levels, [the currency] is putting a lot of Irish exporters under stress, especially tourism and agri-food,” said Philip O’Sullivan, chief economist at Investec Ireland.

And he warned of the risk that sterling would fall further after May’s speech.

Alan McQuaid, chief economist at Merrion Capital, said the euro and sterling were set for a period of volatility, as elections in the Netherlands and France draw closer.

Warning that sterling could fall further to 90p in the short term, he said, however, the euro could weaken again should anti-EU parties gain ground in European elections. The uncertainty over Brexit was not causing shockwaves in European government bond markets.

The cost for Ireland and Italy to borrow for 10 years was little changed yesterday at 0.93% and 1.9%.

However, Ryan McGrath, senior bond trader at Cantor Fitzgerald, said “headwinds” for all markets, including government bonds, were building ahead of the European elections.

Even London’s Ftse index of top 100 shares was hit by the concerns over a hard Brexit.

It ended its record 14-day winning streak yesterday, finishing down for the first day since December 21, as banking stocks slumped ahead of May’s speech.

The Ftse 100 index fell 0.2%, having touched a fresh all-time high of 7,354.14 points earlier in the session. Under a hard Brexit scenario, the UK would prioritise immigration controls and bilateral trade deals.

In 2016, the Ftse 100 was the best performer among major regional indices in Europe, gaining more than 14%.

“It certainly feels like the Ftse is currency-led at the moment, so we may see some currency movement on the downside [today],” said Mark Ward, head of trade execution at Sanlam Equities.

“Although, again, it does feel like we are now reaching extreme bear levels in sterling, so any hint of remaining in the customs union could prompt some pound short covering and stage a decent rally,” he said.

Joshua Mahony, market analyst at online broker IG, said: “Theresa May is caught between a rock and a hard place, where support for a soft Brexit is required for [UK] business confidence, yet further talk of a hard Brexit helps strengthen [the UK’s] hand during trade negotiations.

“Ultimately, May has to show a willingness to take the hard Brexit approach to avoid single market access becoming the EU’s number one tool within trade negotiations.” n Additional reporting Reuters

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