No-deal Brexit could lead to food shortages and higher prices, Central Bank warns
Financial watchdog says the UK crashing out of the EU would have an ‘immediate impact’
The Central Bank’s director of economics and statistics said tariffs and customs delays at ports and airports could drive up prices and hit the availability of some goods. Photograph: Alan Betson/The Irish Times
A Quarterly Bulletin published on Friday by the financial watchdog predicts that the Republic’s economy will grow 4.4 per cent this year if the UK leaves the EU with an agreement on March 29th.
However, the bank warns that a no-deal Brexit could have an “immediate impact” on the economy, disrupting trade between the two countries and cutting growth by four percentage points over the following 12 months.
“For consumers, this disruption could result in increases in the price of imported goods while the availability of some products could also be jeopardised,” the bulletin says.
Central Bank director of economics and statistics Mark Cassidy explained that tariffs and customs delays at ports and airports could drive up prices and hit the availability of some goods.
He said that the problems would mainly affect food and products imported by businesses for use as components in manufacturing finished goods.
The Central Bank bulletin points to a previous report by the Economic and Social Research Institute (ESRI) showing that foods imported from the UK include bread and cereals, tea and coffee, sweets and soft drinks.
Tariffs are charged at 10 to 15 per cent on food. The ESRI calculated that they could add €1,396 a year to an average home’s shopping bill. However, Mr Cassidy pointed out that weaker sterling would offset some of the extra cost.
Mr Cassidy, who stressed that the figures were a scenario based on certain assumptions rather than a forecast, said a no-deal Brexit could limit growth to 1.5 per cent in 2019.
Businesses would cancel or delay investment in the face of tougher economic conditions, the bank believes.
“Consumer spending would also be negatively affected, reflecting concerns over future job losses and income prospects,” its bulletin says.
A fall in sterling and tariffs on Irish exports would cause an immediate slump in demand from the UK, hitting farmers and small businesses that sell goods to Britain.
“Those sectors which are most reliant on trade with the UK or which are more vulnerable to the imposition of tariff or non-tariff barriers, such as agriculture, food and smaller-scale manufacturing, are likely to be more adversely affected,” the report states.
Mr Cassidy suggested that the fall in growth would be unlikely to hit jobs, but could slow the rate at which new posts are created.
“We still assume positive growth in employment overall,” he said. Mr Cassidy pointed out that the impact on jobs usually lags a slowdown in economic expansion.
Meanwhile, the Government on Thursday published the general scheme of a 17-part omnibus Bill that will be needed to prepare Ireland for the consequences a no-deal Brexit.
It provides for amendments to existing legislation to allow for the continued payment of social welfare payments as they relate to the Common Travel Area. The Common Travel Area allows Irish and EU citizens avail of benefits such as pensions and illness and child benefits in each other’s country. The legislation would allow for this arrangement to continue even in the case of a no-deal Brexit outcome.
The Bill seeks to provide for the continuation of cross-Border rail and bus services. It also covers a wide-range of reciprocal healthcare arrangements, including reimbursements, to be maintained between Ireland and the UK in the event of a no-deal Brexit. It seeks too to ensure that extraditions between the UK and Ireland are unaffected.
Speaking in Davos at the World Economic Forum, Taoiseach Leo Varadkar said a no-deal Brexit would trigger a “major dilemma”, which would require Ireland, the UK and EU to sit down “after a period of chaos” and hammer out an agreement to honour commitments that there’d be no hard border between the Republic and the North.