Market fears amid warning over no Brexit deal

Irish exporters have been warned about further sharp currency fluctuations, should the EU-UK talks end in no trade deal and tough controls over workers.

Sterling could fall below 90 pence, against the euro, on fears there might be no trade deal in the next two years, and on concern British economic growth might slow, said Conall Mac Coille, chief economist at Davy Stockbrokers. Britain’s triggering of Article 50 started the clock running on the two years allowed for the UK to exit the EU, even though the formal talks do not start for several weeks.

But accountancy adviser, PwC, said it was likely that no agreement over a transitional trade deal would be struck by late March, 2019.

The UK would, therefore, revert to arrangements under the World Trade Organisation, a result “which would most likely impact Ireland”, said managing partner, Feargal O’Rourke. The common travel area would likely survive, but Irish citizens could face restrictions working in the UK, as Britain seeks to control EU workers, PwC said.

Economists are telling Irish firms to brace for more uncertainty.

Philip O’Sullivan, chief economist at Investec Ireland, said the complexity of the talks, which involve Britain striking deals with 80 industrialised nations, mean that the two-year deadline will be “totally inadequate”. A period of volatility would “obviously be unhelpful for Irish exporters”.

Britain using WTO rules represents the hardest of Brexit outcomes and is widely seen as a significant threat to Ireland’s food and agricultural firms, and likely lead to disruption of trade for many other industries.

Alan McQuaid, chief economist at Merrion Capital, said it would be surprising if sterling were not to weaken in the coming months, should it appear the Brexit talks had gotten off to a bad start.

Sterling fell 0.3%, to 86.6 pence, yesterday. It had traded at 76 pence on the eve of the UK’s vote to leave the EU, last June. It slumped, to trade briefly as low as 94 pence, last October. Joshua Mahony, market analyst at online trader, IG, said the London stock market showed “mixed emotions” on the triggering of Article 50, but was helped by the “conciliatory tone” of the UK correspondence with Brussels. He said there was “a suitably volatile day for the FTSE, with initial gains fading to red, only to rebound into the close”.

Liz Hughes, head of the Association of Chartered Certified Accountants (ACCA), has called on the Government to help Irish SMEs weather the fallout from Brexit. ACCA said an “unprecedented” number of clients were seeking support to set up companies in the North. “While the Government must consider what its approach to EU state aid rules will be, and how that impacts the support it can provide, it cannot sit idly by and watch strong businesses flounder or relocate to the UK,” she said.

Reuters reported that ECB policymakers are wary of making any new change to their policy message in April, after small tweaks this month upset investors and raised the spectre of surging borrowing costs. Taken aback when markets started to price in an interest rate hike early next year, policymakers are keen to reassure investors that their easy-money policy is far from ending, suggesting a reluctance to change message before June.

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