‘Rollercoaster’ week ahead for sterling and Irish shares and businesses

Stock markets on both sides of the Irish Sea are bracing for a week of high political drama at Westminster, which may decide whether Britain is set to crash out of the EU at the end of October.

Sterling, however, traded little changed at 90.34 pence yesterday. The UK currency had slid mid-week when Boris Johnson engineered a suspension of the UK parliament in a bid to stymie MPs who plan to outlaw his threat of a no-deal Brexit at Halloween.

Stock markets in Dublin and in London — which will bear the brunt of any renewed sharp falls in the pound — were also little changed.

The Iseq index ticked higher, helped by a 2.7% gain for Smurfit Kappa shares, even as Bank of Ireland shares slipped by 1.5%.

The Ftse-250 index — which represents a broad range of companies which are exposed to the British economy and the economic harm entailed by a hard Brexit outcome— ended the session slightly higher too.

Shares in companies listed in Dublin and Ireland have been hit ever since the UK voted in the summer of 2016 to leave the EU. Sterling has since lost 25% of its value against the euro.

Companies exposed to the British economy such as Irish exporters who rely on British sales, Irish travel companies and Irish banks face a double whammy from Brexit.

The adverse effects include the damage that the drop in the value of sterling inflicts on profit margins, as well as from the economic slowdown in Britain and Ireland, as businesses and households invest and spend less.

Many market observers predict next week will give a clearer sign of the direction that Britain is heading with Brexit.

“With MPs set to try to make the most of one of its last opportunities to prevent a no-deal, next week is set to be a rollercoaster ride in UK politics,” said Gabriella Dickens at Capital Economics in London.

“By proroguing parliament, Boris Johnson has narrowed the window of opportunity for those MPs in the House of Commons who are set to try to prevent a no-deal Brexit. There are now a maximum of 10 days before the 12th September — the last possible date parliament will be prorogued — and 12 sitting days after parliament returns between the 14th of October and the 31st October Brexit deadline. This leaves little time for either of MPs’ two main schemes to prevent a no-deal Brexit to be completed,” she said.

Justin Doyle at Investec Treasury in Ireland warned about a further slump in sterling should MPs fail next week to put the brakes on Mr Johnson’s hard-Brexit threat.

“Next week will be a crucial week for the pound. If we finish the week with little progress in stopping a hard Brexit, then I think sterling will come under significant pressure. While there is an element of excitement for market watchers, it is also certainly a very worrying time for Irish businesses,” said Mr Doyle.

Chris Beauchamp, chief market analyst at online broker IG, said: “Investors will be glad to put August behind them”, but warned that the Labor Day US holiday on Monday means stock markets will have no direction at the start of the week.

Meanwhile, France will test measures for Britain’s exit from the EU for a month so that companies are fully-prepared ahead of Britain leaving the union at the end of October, its minister in charge of customs has said.