Ster­ling surge eases bor­der shop­ping con­cern

Irish Examiner - - Business - Ea­mon Quinn

A surge in the value of ster­ling against the euro on in­creased spec­u­la­tion that a UK rate hike is loom­ing has for the time be­ing eased fears about the fall­out of Brexit boost­ing cross-bor­der shop­ping and dis­rupt­ing the econ­omy.

Com­ments by Bank of Eng­land pol­i­cy­maker Gert­jan Vlieghe about an early UK rate hike came a day af­ter a sur­prise hawk­ish tilt in the lan­guage used by the cen­tral bank.

Ster­ling soared against the dol­lar and climbed at one stage by over 1% to 88p against the euro.

Af­ter fall­ing to 92p in re­cent weeks, ster­ling’s re­newed strength will help ease some fears of small Ir­ish ex­porters who sell goods and ser­vices across the Ir­ish Sea.

It may also quell of­fi­cial con­cerns about the prospects of a cross-bor­der shop­ping sales splurge over Christ­mas. Pre­sent­ing new GDP fig­ures, CSO of­fi­cials high­lighted the cur­rency ef­fects that put the breaks on the sale of new cars in the Repub­lic since the UK voted to leave the EU over a year ago.

They said a drop in per­sonal con­sump­tion in the sec­ond quar­ter prob­a­bly re­flected an in­crease in cross-bor­der shop­ping as con­sumers and busi­ness tapped the ben­e­fit of weak­ened ster­ling.

In­dus­try and ex­che­quer fig­ures have shown for some time shop­pers were buy­ing cars in the North and in Bri­tain, as ster­ling slumped.

The statis­ti­cians said how­ever, the con­sump­tion of many goods and ser­vices, in­clud­ing food and medical prod­ucts had risen.

GDP grew 1.4% in the sec­ond quar­ter and in­creased 5.8% from a year ear­lier and the gains were spread across most parts of the econ­omy.

“The num­bers are pos­i­tive for most sec­tors. There are some neg­a­tives of course. Per­sonal con­sump­tion was down be­cause of ster­ling but that may change with the im­prove­ment in the cur­rency in the last few days as the Bank of Eng­land ap­pears to be set to raise in­ter­est rate be­fore year end,” said Alan Mc­Quaid, chief econ­o­mist at Mer­rion Cap­i­tal.

Be­cause of the cur­rency head­winds, ex­porters still face the largest chal­lenges, he said.

De­spite this week’s gains, ster­ling is still trad­ing 15% lower against the euro since be­fore the UK ref­er­en­dum in June last year.

Der­mot O’Leary, chief econ­o­mist at Good­body said that de­spite un­spec­tac­u­lar growth in con­sump­tion that con­struc­tion “con­tin­ued to power ahead”.

How­ever, the pic­ture on ex­ports and im­ports con­tin­ued to be blurred by the ac­tiv­ity of the multi­na­tion­als, he said.

Fig­ures on in­vest­ment have been af­fected by a high level of volatil­ity as multi­na­tion­als im­ported huge lev­els of in­tel­lec­tual prop­erty rights into Ire­land, as they re­ar­ranged their global tax af­fairs in re­cent years.

The sharp fall in GNP, down 4.6% in the quar­ter — re­flected multi­na­tion­als repa­tri­at­ing prof­its to their over­seas’ own­ers.

Against the dol­lar, ster­ling climbed to the high­est level against the dol­lar since just af­ter the Brexit vote and UK gov­ern­ment bonds tum­bled af­ter the Bank of Eng­land’s Vlieghe stoked spec­u­la­tion of an in­ter­est-rate in­crease within months.

Ster­ling surged past $1.36 af­ter Vlieghe, con­sid­ered a dovish mone­tary pol­icy voter, turned hawk­ish to tell a con­fer­ence the mo­ment was ap­proach­ing for a rate hike.

Ad­di­tional re­port­ing by Bloomberg

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