Three key questions UK general election poses for Irish economy

Value of sterling, nature of Brexit and implications for island of Ireland all critical

A graph on a trader’s screen on the trading floor of ETX Capital in London shows the fall of pound sterling when the first UK election exit poll was released. Photograph: Glyn Kirk/AFP/Getty Images

A graph on a trader’s screen on the trading floor of ETX Capital in London shows the fall of pound sterling when the first UK election exit poll was released. Photograph: Glyn Kirk/AFP/Getty Images

 

Three key questions emerge for the Irish economy from the UK general election. As the Brexit talks start in the next few weeks – assuming they get going on schedule – these three issues are inextricably linked and all relate to the impact of the election on these negotiations.

What will it mean for the value of sterling?

The value of sterling against the euro is a key issue for Irish exporters to the UK. Weakness in the UK currency makes life harder for exporters as it squeezes their profit margins and makes it harder to compete.

It also makes it easier for UK companies to compete here. Sectors such as food, where upwards of 40 per cent of exports go to the UK and where margins are typically tight, are particularly exposed.

The UK currency fell sharply overnight as it became clear that the Conservatives would not get a majority. However, having gone well over 88p to the euro, sterling eased back later and its fall of about 1.5 per cent was much less dramatic than in the immediate wake of the Brexit vote.

A number of market analysts said the possibility of a softer Brexit due to the weakening of the Conservatives’ position was giving the currency some support. However, it clearly remains vulnerable to further political uncertainty or to anything which delays or endangers the Brexit talks, due to start on June 19th.

What will the nature of Brexit be?

The big question for Ireland is whether the Brexit talks can now succeed, what the negotiating position of a weakened Theresa May will be and what kind of deal can be done. The harder the Brexit, the greater the economic risks for Ireland.

An ESRI study showed that growth could be not far off one percentage point lower for a few years after Brexit, due to the hit on trade from tariffs and other barriers to trade. However, there are other factors too – including the prospect of inward investment, on the plus side.

If the Brexit talks can succeed, this could remove two risks for Ireland. The first is by doing a trade deal which would remove the risks of tariffs, or at least minimise them, while making new customs arrangements as painless as possible. The second is by agreeing a transitional deal covering the period after Britain leaves the EU, but before a new trade deal is done.

This would lower the immediate economic risk as Britain leaves at the end of March, 2019. All eyes will now be on whether the talks start on time and what the mood music is as the two sides head into the first tricky issue of sorting out Britain’s exit bill.

What it will mean for the island of Ireland?

Theresa May is to rely on support from the DUP to stay in power – and this will come at a price. It remains to be seen how this will affect the Government’s strategy in relation to the North, where it has received EU agreement that the North could return to the EU, in the event of a vote for a reunited Ireland.

The DUP’s central point is that it does not want a special status for the North, a concept which Sinn Féin supported, to allow the North to remain in the customs union.

The Government has not argued for this, though incoming taoiseach Leo Varadkar gave the concept support in a policy discussion document during the leadership campaign.

However, the DUP argues that, economically, while this special status would allow free trade across the Border, it would mean customs checks and possibly tariffs between the North and Britain, which would be damaging, as this is the main market for the North’s firms.

The DUP has supported Brexit and the idea of Britain forging new trade relationships beyond the EU – which would involve leaving the customs union. At the same time it has said it will seek a “frictionless” Border with the Republic.

The Government shares this goal in relation to the Border, but once the UK leaves the customs union – and barring some special deal – some checks on the Border will be inevitable.

The DUP has also hinted it has special concerns for some sectors, likely to include farming and agriculture. A softer Brexit, involving as free trade as possible, would suit the DUP, though it remains a strong supporter of Britain leaving.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
GO BACK
Error Image
The account details entered are not currently associated with an Irish Times subscription. Please subscribe to sign in to comment.
Comment Sign In

Forgot password?
The Irish Times Logo
Thank you
You should receive instructions for resetting your password. When you have reset your password, you can Sign In.
The Irish Times Logo
Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.
Screen Name Selection

Hello

Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
Forgot Password
Please enter your email address so we can send you a link to reset your password.

Sign In

Your Comments
We reserve the right to remove any content at any time from this Community, including without limitation if it violates the Community Standards. We ask that you report content that you in good faith believe violates the above rules by clicking the Flag link next to the offending comment or by filling out this form. New comments are only accepted for 3 days from the date of publication.