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Central Bank adds to exporters’ concerns around no-deal Brexit

If the UK crashes out of the EU it could see the euro rise to 97p sterling – a nightmare for exports

Sterling’s trajectory in recent months has closely matched the ebbs and flows of the Brexit talks

Sat Apr 6 2019 - 05:40

Sterling’s trajectory in recent months has closely matched the ebbs and flows of the Brexit talks. This has been an uncertain environment for Irish exporters, but not one causing significant difficulties, with the euro moving generally between 85p and 88p sterling. In the immediate wake of the Brexit vote a lot worse had been feared.

But we are not out of the woods yet – not by a long way.This week the Central Bank estimated that in the event of a no-deal Brexit, where the UK simply crashes out of the EU, the euro would rise to around 97p sterling. Previous studies of Irish exporters – one involving the food sector and one more general exporters – suggested that once the rate rises above 90p serious competitiveness issues start to emerge.

Add this to the threat of tariffs on some exports in the event of a no-deal exit and you have a potentially big hit on exports from the indigenous sector – and on jobs.

Sterling lost some ground on Friday, trading at around 86.2p in late dealing against the euro. Investors still feel on balance that a no-deal exit will be avoided, but that the risk is not off the table yet.

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The outlook for next week will be determined by the Brexit talks and the ECB council meeting on Thursday. ECB president Mario Draghi is expected to maintain his cautious tone on interest rates and the economic outlook, and this is a factor limiting support for the single currency.

For sterling, the current price assumes a further extension next week, but probably not a lot more. A conclusive move towards a softer Brexit or a long delay would thus be likely to send sterling higher. However, as the Central Bank warned, a lurch to an unexpected no-deal at the end of next week – or at some later date – could lead to an even sharper sell-off.

Traders will be conscious of the old business saying that “time is the enemy of a deal”. And time is now desperately short.

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