Fall of pound adds to cost burden for importers

The pound has continued slipping against sterling, putting further pressure on companies importing products from the UK.

The pound closed at 81.11p against sterling from 81.22p on Monday, the lowest since September 1985, having traded as low as 80.8p during the day. At the same time it remained flat at DM2.5130.

Mr Collum MacDonnell, chief executive of the Irish Exporters Association, said that now was the time for companies to examine entering the UK market. "Anyone with export aspirations should now be looking at the UK," he said.

He added that exporters to Britain do not gain the entire currency advantage on their margins. Instead, many UK companies were seeking to have the differential reflected in the price they paid Irish companies for goods.

In addition many exporters source many components parts of their products in the UK. Furthermore, 35 per cent of all imports come from the UK, causing significant financial difficulty for many importers.

Mr Colin Hunt, economist at Bank of Ireland, said sterling continues to be the "dealers' darling" and is likely to rise as high as DM3.15, which would mean a rate of just under 80p.

According to Mr Geoffrey Dicks, economist at Greenwich NatWest, there is a view that UK rates will rise to 7.5 or 7.75 per cent and while that is in the background sterling is a one-way ticket. Until then DM3.20 remains feasible, he said.

Analysts also dismissed the possibility of intervention by the Bank of England. "I cannot see how you could justify intervention," Mr Henry Wilkes, head of trading at Bank Julius Baer in London said. "The Bank is pursuing a strategy that requires interest rates to go up, which is substantiating sterling strength, so they cannot on the other hand intervene to stop it rising. That would be absolutely idiotic."

The last time the Bank of England intervened aggressively was in its failed bid to prop up sterling within the exchange rate mechanism in 1992. But the last time it intervened to actually cap sterling was in the late 1980s when the then chancellor Mr Nigel Lawson was attempting to shadow the mark.

Mr Hunt added that the primary focus is on the Japanese market where further deregulation was expected last night. "We will see large capital outflows from the yen and it could come under significant pressure," he said.