The sell-off in sterling amid jitters about the outcome of the UK vote on remaining in the EU has eroded the hugely favourable factors driving Irish exports and may continue to weigh on the currency for some time, Investec Ireland has said.
In a report on Brexit, the bank said that the looming referendum had largely contributed to the unexpected weakness of sterling in the early part of this year that had sent the currency from around 70p to 77p.
Last year, Irish exporters had benefited from an exceptional constellation of factors, including the strength of sterling and the strong recovery in Britain which had expanded the market for Irish goods and services.
“Tourism, agri-food, and manufacturing were lifted by sterling’s rise to an eight-year high against the euro, bolstering the attractiveness of Irish goods and services for UK buyers,” Investec said.
“The export components of last week’s Investec Services and Manufacturing purchasing managers’ index releases suggest that this momentum continued into the new year.”
However, the Brexit vote could have deep implications for sterling and the UK economy, which could affect Irish exporters.
“More recently, however, cheerfulness has given way to caginess as a sterling sell-off has reversed some of the above advantageous moves,” said Investec.
“A run of weak UK economic data and confirmation of a deferral of Bank of England monetary policy normalisation contributed to the swing.
“Yet the main driver behind the recent sterling weakness has been a growing appreciation of the risk of Brexit — the possibility that the UK might vote to divorce itself from the rest of the EU.
"This would have profound implications for sterling and the wider British economy, producing serious challenges for other EU member states including Ireland,”
In its ‘Irish Export Monitor’, Investec assesses that British prime minister David Cameron will not call a referendum unless he is confident that British voters will decide to stay in the EU.
However, any delay in calling a referendum will likely extend uncertainty and weigh on sterling as a result.
The bank said there are few events in the past to draw on to determine how sterling will trade amid the uncertainty over the vote.
“If polls suggest that British voters are cold on Europe, he will push the referendum to the autumn.
"This will extend the uncertainty, which will be unhelpful for many Irish businesses,” said the bank.
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