Sterling at 90p puts squeeze on SMEs

Sterling slumped to under 90p against the euro as the UK looks set to keep interest rates lower for longer, piling on the pressure for Irish-owned firms who make a living selling goods and services across the Irish Sea.

Most leading forecasters believe that Irish firms had weathered the first wave of the fallout after sterling started dropping from last summer when the UK voted to leave the EU.

But the latest round of sterling selling spells more pressure and raises the level of uncertainty of Irish food companies and other SMEs because now they will make less money from selling their goods and services into that market.

Since the June vote in 2016, sterling has now fallen 15%, and at 90.3p is at its lowest level since last October.

The latest selling of sterling was sparked after the Bank of England left UK interest rates unchanged at rock-bottom levels, and markets bet that the central bank may not be minded to raise borrowing costs for some time because of signs that growth in the UK economy is weakening, as the shock waves from Brexit dampen UK consumer spending.

That, in turn, spells more bad news for small Irish exporters. Pharmaceutical and tech multinationals selling across the EU from Irish bases are relatively immune to currency effects. The Bank of England voted 6-2 to keep interest rates at their record lows and lowered its forecasts for growth, inflation and wages.

Bank of England governor Mark Carney and his top officials reiterated that they might raise borrowing costs more than investors expect over the next three years, possibly within a year.

But markets focussed on the bank’s lowering of its 2017 growth forecasts, to 1.7% from 1.9% in May, as well as its unexpected reduction of its inflation projections, which it put at just under 2.6% in a year’s time after peaking around 3% in October.

A few weeks ago, investors had begun to price in a chance that the Bank of England might raise interest rates for the first time in a decade this month, after a series of hawkish remarks by policymakers, including Mr Carney.

But a raft of UK weaker data — as well as deep uncertainty about the impact of Brexit — called that view into question.

Recent figures showed the UK economy had its slowest growth since 2012 in the first half of this year, while inflation has also dipped and growth in wages remains weak.

Divorce talks between Britain and the EU have had a stumbling start, leaving many Irish and UK firms nervous about the risk of a damaging exit in 2019.


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