Exporters warned weak sterling woes set to escalate

IRISH exporters are likely to have to contend with a structurally weaker sterling as the UK’s safe haven status is being eroded, Investec has said.

The pound has lost close to a fifth of its value against the euro since the Brexit vote, dealing a blow to Irish companies selling their wares into the UK market.

Although the pound is hovering around the high 80s to the euro, it is considerably weaker than before the vote in June 2016.

In its latest economic assessment, specialist bank Investec has warned exporters this could be sustained. “Irish exporters will likely have to deal with a structurally weaker sterling as the UK’s ‘safe haven’ status has gone the way of its AAA rating,” said Investec economist Philip O’Sullivan. “Major changes to supply chains will also in all likelihood be needed. The outcome of Phase II of the Brexit talks is key here.”

The Irish Exporters Association has said many companies have moved on from being concerned about currency, to worrying about customs and the potential implications of trade barriers.

Sterling reversed small losses yesterday to trade flat after British economic growth for the third quarter was left unchanged and the year-on-year number was revised higher.

The prospect of further protracted negotiations to seal Britain’s exit from the EU next year has weighed on the currency in December, although the pound is still up in the last two months after gaining about 4pc in November.

Britain’s Office for National Statistics (ONS) said economic growth for the July to September was 0.4pc, unchanged from the previous reading and in line with the consensus. Year-on-year economic growth was revised up to 1.7pc from an earlier 1.5pc.

“There’s been a bit of a push higher [for sterling]. I don’t think it’s as big a move as it deserves. The numbers were good,” said David Madden, an analyst at CMC Markets.

Some traders, though, believe the pound will rally in 2018 if Britain agrees a Brexit transition deal and talks with the EU progress faster than expected.

Meanwhile, Investec said recent data releases confirm that Irish economic growth gathered steam during 2017.

It is now predicting full-year growth for 2017 at about 7pc.

“On this basis, Ireland will be the fastest-growing economy in the EU28 for a fourth successive year,” it noted.

“While factors pertaining to the multinational sector are undoubtedly flattering this headline growth rate, the CSO’s modified total domestic demand indicator, which strips out the multinational distortions, shows an increase of 4.9pc year-on-year in the first three quarters of the year, which chimes with our view on the ‘real’ level of growth in the underlying domestic economy.”

Investec said that on the public finances, the latest Exchequer Returns data show that a strong finish to the year is in prospect. November’s tax receipts were 4pc year-on-year and 2.3pc ahead of the Department of Finance’s monthly profile, or target.

“Aided by this recent momentum, we continue to see the general government balance moving into positive territory in 2018,” Investec said.

Separately, Spanish stocks and the euro fell while Spanish government bond yields hit one-month highs yesterday, after Catalan separatists won a regional election, (Additional reporting Reuters)

‘The UK’s safe haven status has gone the way of its AAA rating’