Central Bank says Brexit negatives to outweigh possible gains

While the decision of some financial services firms to move to Ireland post-Brexit might lead to job creation, the overall impact of Britain's decision to leave the European Union will be bad for the economy, Central Bank deputy governor Sharon Donnery has said.

Speaking at the Irish Centre for European Law at the Royal Irish Academy in Dublin on Wednesday, Ms Donnery said with no road map available on how a country goes about exiting the EU, it was difficult to determine its possible impact.

However, she said that given Ireland’s high level of exposure to the UK economy, the overall impact would be “negative and material”.

“To date, in the absence of any weakening in the UK economy, the impact of the Brexit referendum outcome on Ireland has mainly been felt through the volatility in the euro/sterling exchange rate.

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“Irish economic performance is quite sensitive to sterling exchange rate volatility given our close ties to the UK. Sterling now appears to have fallen into a holding pattern on a trade weighted basis and versus the euro since it posted new lows in October,” said Ms Donnery.

The deputy governor said while a “hard” Brexit could result in the migration of financial services firms away from Britain, she did not expect to see the emergence of a “new London”.

Fragmentation

“Rather there may be a fragmentation of financial services across several European cities,” she said.

While Dublin may be among the cities to benefit from the move by companies to establish bases outside of the UK, there are also potential risks associated with an influx of firms here.

“The potential establishment of new business lines in Ireland presents a broad range of risks. For the Central Bank from a financial stability perspective, a key consideration is understanding the capacity of any potential firm to cause harm to the financial system, the economy and to citizens through its course of business – particularly were it to fail.”