Irish tourism and small exporters face into sterling storm

Professor Kieran McQuinn at the ESRI said the new British economic policy "doesn't appear to be coherent".

Irish firms exporting into Britain and tourism visitor numbers are the most vulnerable to a full-blown sterling crisis.

The British currency plunged for a second day as financial markets questioned the economic credibility of the new British government led by Prime Minister Liz Truss which last week cut personal taxes and reversed planned tax rises at a time of roaring inflation. 

Irish experts fear that the fright taken by financial markets reflects fears that the British economy is heading toward a prolonged recession.        

A weaker sterling against the euro can erode the slim profit margins of Irish small exporters selling into Britain. Sterling fell at one stage on Monday to 90 pence against the euro before strengthening slightly to 89.4 pence. The yield on the British 10-year gilt or bond jumped to 4.2%.           

Neil McDonnell, chief executive of business group Isme, said the fall in sterling was a blow to small exporters because the British market remains hugely important for Ireland. However, SMEs which import products or components from Britain could benefit from the stronger euro.               

Overall, there was "a sense of foreboding" that British economic policies could further dampen the economic prospects of a major economy at a time of crisis, Mr McDonnell said. 

Eoghan O'Mara Walsh, chief executive of the Irish Tourism Industry Confederation, said any sustained fall in sterling could discourage British visitors from visiting Ireland. "It is a factor that is not going the way of Irish tourism businesses at the moment," he said.

Professor Kieran McQuinn at the Economic and Social Research Institute said the new British economic policy "doesn't appear to be coherent" because it will drive interest rates higher which in turn will hinder the UK government's policy to drive growth. 

The UK is going to experience higher inflation because the "folly" of cutting tax rates will likely make inflation pressures worse, Mr McQuinn said.

"So, we are not completely immune from the adverse shock they are likely to experience in the UK," Mr McQuinn said, adding that Ireland was in a better position in terms of its economic ties with Britain than 10 or 15 years ago, but that the UK economy was "certainly in for a rough ride".  

Economist Austin Hughes said it matters that Britain appears to be making a mess of its economic plans "and that seems to be the judgment of the financial markets". 

There is less immediate fallout for Ireland because of the lower economic links but it posed a problem for many small indigenous Irish companies trading with Britain, Mr Hughes said.    He said there were significant concerns that suggest a process that will not correct any time soon and could get worse. 

The concerns for Irish businesses and financial markets are that "a more problematic UK economy" points to the challenges building across Europe, Mr Hughes said.

He said that such "cold winds" supports the case for a significant budget package to help businesses and households to pay soaring energy bills.