Sterling weakness following UK election hits Irish exporters

Expectations of softer Brexit policy help check slump in pound

Sterling registered its biggest daily fall in seven months against the euro. Photograph: Dado Ruvic/Reuters

Sterling registered its biggest daily fall in seven months against the euro. Photograph: Dado Ruvic/Reuters

 

The position of Irish exporters has been further eroded by another slide in sterling following the UK’s surprise election result, which left Theresa May’s ruling Conservative Party without a majority just days before the Brexit talks begin.

While sterling registered its biggest daily fall in seven months against the euro the slump appeared to be checked by expectations that the UK government may pursue a softer stance on Brexit and even loosen the purse strings to assuage an austerity-weary electorate.

After an initial plunge to 88.6p against the euro, the UK currency pared losses and was trading just 1.6 per cent down at 87.9p on Friday evening.

While a weaker sterling represents more bad news for exporters here, who have borne the brunt of the Brexit-related depreciation in sterling since last year’s referendum, it could have been much worse.

Some analysts had predicted a hung parliament result in the UK would see sterling crash to a new low of 92p, a level not seen since the flash crash incident last October.

Having failed to win a stronger mandate, Ms May said she would form a government with the help of the Democratic Unionist Party (DUP).

Modest sell-off

“Faced with this uncertainty, the immediate market response seems fairly reasonable: a modest sell-off in the pound,” Pimco’s head of sterling portfolio management, Mike Amey, said. “Looking ahead, assuming a base case of easier fiscal policy and a ‘softer’ Brexit, we would expect . . . stability returning to the pound.” Others, though, have argued that without a strong Brexit mandate, the government’s hand in negotiations may have been weakened.

Investec’s head of foreign exchange, Mark O’Brien, said investors had taken some comfort in the fact that there is going to be a government.

Mr O’Brien said the objective of strengthening Ms May’s hand in the negotiations had failed, leaving her more exposed to the buffeting winds of the hard Brexiteers and the Remainers within her own party.

However, that could also stop her walking away from a deal in favour of a so-called hard Brexit, he said, which markets are viewing as a positive.

Britain’s economy slowed sharply in the first three months of 2017, making it the worst performer among the G7 nations after outpacing its peers in 2016, despite the shock of the Brexit vote. As well as rising inflation and slow wage growth weighing on consumers, the economy now has to contend with heightened political uncertainty about Britain’s ability to proceed with its plan to leave the European Union.

Britain’s economy grew by a below-par 0.2 per cent in the three months to May, the National Institute of Economic and Social Research said on Friday. “The subdued performance in the economy throws the political turmoil of a hung parliament into sharp relief,” the think tank’s director, Jagjit Chadha, said. “People are looking for answers to low levels of economic growth, limited improvements in productivity and falling real wages.”

The impact of the British election on the Irish stock market was minimal, with the Iseq moving up 0.18 per cent. However, some Irish stocks with major UK operations or exposure to the British market finished the day down on their opening prices.

Ryanair, the Irish Ferries owner Irish Continental Group, and Paddy Power Betfair, all finished the session in negative territory. – (Additional reporting by Reuters)