Irish exporters hit as tweet drags sterling lower

Sterling dropped yesterday after an extraordinary series of events, including a tweet from the Sky Television economics editor, helped pile on uncertainty for exporters ahead of the UK’s ‘in-out’ referendum on the EU in 10 weeks’ time.

The 16% slump in sterling against the euro this year has hit Irish exporters hard, eroding a huge slice of their currency advantages that had helped drive jobs-rich exports by indigenous firms into Britain last year.

The UK currency’s weakness as the vote on June 23 looms into view has also put into question whether a new incoming government here will have the same huge bounty in corporate tax receipts that the coalition tapped in 2015.

Opinion polls showing a tight result in the Brexit vote — though polls show a large part of the UK electorate has yet to make up its mind — has weighed on sterling.

Yesterday, a meeting of the Bank of England on UK interest rates was the centre of further attention for sterling.

The bank’s Monetary Policy Committee left rates unchanged, and also said it detected that uncertainty about the Brexit vote had led to a reduction in investment decisions.

However, a mid-morning tweet by Sky economics editor Ed Conway sent sterling tumbling by half a cent against the dollar at one stage — a large fall in any day for currency markets.

Mr Conway tweeted he understood “at least two members of the MPC were strongly considering a vote for a cut”, adding to speculation the bank could send some sort of dovish message on rates.

 

Scott Bowman, UK economist at Capital Economics said the “unanimous decision” in the end to leave the UK bank rate unchanged at 0.5% “was unsurprising”.

“A rate cut does not appear to be on the cards,” Mr Bowman added, even as bets on financial markets suggest the UK will cut again.

Sterling weakened 0.3% to 79.57 pence against the euro, having touched 79.25p on Wednesday, the strongest level in more than a week.

Philip O’Sullivan, chief economist at Investec Ireland, said yesterday’s events illustrated the huge uncertainty facing Irish exporters.

“Irish exporters need to be watching the UK opinion polls and we can expect a lot of uncertainty through to June 23,” Mr O’Sullivan said.

He said several official voices in recent days, including that of the IMF, warning about the economic implications of a Brexit on the British economy and the wider European economy had probably helped sterling rise slightly earlier this week.

With opinion polls showing roughly a sixth of UK voters have yet to make up their minds, the increasing number of warnings — dubbed by proponents of Britain leaving the EU as ‘Project Fear’ — could help keep the UK in the EU, Mr O’Sullivan said.

However, a leading analyst believes that the UK polls are overstating support for leaving the EU.

There’s only a 24% chance of Britain voting for a Brexit estimates Matt Singh, the political blogger who spotted polling flaws and correctly predicted the outcome of last year’s UK general election.

Mr Singh, a former trader at Barclays, has taken into account the “house effects” of different polling companies, which have been giving very different views of public opinion about the EU.

Additional reporting: Reuters and Bloomberg


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