Sterling rose almost 1% against the euro yesterday as a survey of British factories suggested the UK was not heading into a steep slump in the wake of the UK vote to quit the EU after all.
The rise of the pound is welcome news to the many big and small Irish exporters and the many thousands of jobs they support because it makes it more competitive to sell goods and services across the Irish Sea.
Sterling has, however, still declined by about 10% to 84.2p against the euro from 76.7p on the eve of the UK’s June 23 referendum.
More evidence was provided yesterday that Ireland is in the frontline of the Brexit fallout, with the monthly survey of Irish factories reporting only modest growth in August.
Analysts said the most significant part of the UK survey of its purchasing managers was that it assuaged fears that the UK was heading into a recession following the Brexit vote — a prospect that would sharply reduce UK demand for Irish goods and services.
The UK’s Markit-CIPS Purchasing Managers’ Index jumped to a 10-month high of 53.3 in August after tumbling to a three-year low of 48.3 in July in the immediate aftermath of the Brexit referendum.
“We would expect [UK] manufacturing exports to fare well post-Brexit because they gain from falling sterling, but the surprise is that domestic business picked up too,” said Investec economist Chris Hare.
Manufacturing makes up about 10% of Britain’s economy but if the service sector PMI, due on Monday, shows the same trend, it would prompt a rethink among many economists about the short-term Brexit hit to Britain.
The Bank of England has predicted no growth in the economy in the second half of 2016 and members of its Monetary Policy Committee have said they are ready to cut already record-low interest rates further.
The equivalent Irish survey of manufacturers suggests that factories here are suffering from the strength of the euro against sterling, amid uncertainty about the deal the British will cut with the EU after it starts the formal divorce talks with the trading bloc.
The Manufacturing PMI Ireland index ticked higher to a reading of 51.7 in August, up from 50.2 in July. A reading above 50 means activity has increased, but the latest growth is significantly lower from earlier rates this year and from before the UK’s Brexit vote.
“The new export orders index contracted for the third time in the past four months, with some panellists reporting a drop in new work from UK clients, although on a more positive note higher new orders from the US and continental Europe were also signalled by respondents,” said chief economist at Investec Ireland Philip O’Sullivan.
“While we welcome the slight improvement in the headline PMI, manufacturers’ preference for running down inventory levels points to a more cautious stance regarding the outlook, a sentiment that chimes with our own assessment of the sector’s near-term prospects.”
Across the eurozone, manufacturing growth slowed last month and much of the expansion remained focused in Germany, the Netherlands, and Austria.
Elsewhere, the picture was more subdued, with manufacturing growth in France and Italy in decline, and stagnating in Greece.
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