Sterling steadies despite political threat to May
Sterling edged higher against the euro and dollar in a sign that currency markets still bet that the risk of Britain crashing out of the EU is unlikely. At the start of a week that may decide whether British MPs can avoid the worst possible of Brexit outcomes, and the future of Prime Minister Theresa May may be decided, the UK currency traded calmly. Joshua Mahony, senior market analyst at online broker IG, said that British politicians had “seemingly few options at hand”.
“The hope to keep extending the timeline to somehow hope that MPs will ultimately vote for the current deal looks doomed to fail, and even a change in leadership is unlikely to bring about a deal that would garner enough support to pass,” he said.
IG believes that a no-deal Brexit remains on the cards, “however, with the pound remaining indecisive in its direction, it is clear that markets perceive a referendum or revoking of Article 50 as being just as likely as a no-deal Brexit”, Mr Mahony said.
Researchers from the Economic and Social Research Institute and the Department of Finance said even a soft Brexit will weigh on the Irish economy. But there is no doubt that Britain crashing out of the EU would be the worst of all scenarios, according to the research, Ireland and Brexit: Modelling the impact of deal and no deal scenarios. The level of Irish GDP would be 2.6% lower after 10 years under an outcome in which the UK strikes a transition deal and subsequent trade deal with the EU than it would otherwise have been if Brexit hadn’t happened. Under a no-deal outcome, which involves some planning and resumption to World Trade Organisation tariffs, Irish economic output would be 4.8% lower, while the economy would be 5% lower in the event of a crash-out, or disorderly outcome.
“Overall, in each scenario, the level of Irish output is permanently below where it otherwise would have been were the UK to decide to remain in the EU. However, the negative impact on Irish output in the long run in the deal scenario is approximately half that of the no-deal scenario,” the research said.
The overall hit to the Irish economy would be greater but for Ireland securing a greater share of foreign direct investment that would otherwise have gone to Britain. Meanwhile, Investec Ireland pared its growth outlook but sees domestic issues such as housing and competitiveness rather than external shocks as the main concerns. Irish GDP will grow 4.3% this year and by 3.3% in 2020, it predicted.
“The broad nature of the expansion and the significant economy-wide deleveraging over the past decade should help to counter any weakness,” it said.
Housing costs will continue to rise because it will take many more years before housing supply comes anywhere near to matching housing demand.
“We believe that the mismatch between supply and demand should apply renewed upward pressure to both prices and rents. We see this pressure only gradually easing as housing output climbs, while it is likely to be some time in the next decade before new build finally matches new household formation,” the bank said.
It predicted an increased chance of an early general election if Fine Gael polls well in the local and European elections in May.
