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THE POUND HIT a 28-month low yesterday and continued to fall this morning against the euro and dollar.
Fears among businesses of the negative effects a no-deal Brexit will have on the the domestic economy being blamed for the slump.
New UK prime minister Boris Johnson’s government have ramped up their talk of a no-deal Brexit, with the PM taking a stronger position on this than his predecessor Theresa May.
This has clearly spooked traders, who seem to have been hoping for a last-minute deal being reached between the UK and the EU, which would soften any blow the former may experience on leaving the union.
But as the October deadline draws closer and the UK rhetoric around leaving without a deal ramps up, analysts fear the pound may to continue to fall.
Where the pound is at
Sterling fell below $1.23 against the US dollar and to below €1.10 against the euro on international currency markets yesterday, hitting a low not seen in over two years.
That slump has continued this morning, with £1 sterling equal to €1.09 in euro or $1.23 dollars, as trading markets opened in Asia.
“Tin hats time: All the stops are out and the pound is now in free fall,” said Neil Wilson, market analyst for Markets.com.
There is now a very real chance that the pound will fall to $1.20 and even below.
This leaves the pound just 1% away from hitting a 34-year low. The slump comes at a particularly bad time for the UK as it is peak holiday season.
UK holidaymakers in Europe and further abroad will be hit with less savings as they exchange their pounds for foreign currencies.
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Why the pound is plummeting
The rhetoric around the UK leaving the EU without any deal has ramped up significantly since Johnson took over as UK leader and staffed his cabinet with hardline Brexiteers.
This has spooked a lot of businesses, with lobby groups coming out to warn against the impact a no-deal would have on the country’s economy.
“The British pound started weakening sharply today, with the market awaking to the reality of a new UK government, its rather combative stance on the current EU-UK Brexit deal and its open remarks on the rising probability of a no deal Brexit,” said ING financial services strategist Petr Krpata.
Krpata said sterling’s woes were a “meltdown” and said the decline was unlikely to be over, as “politics should remain the key negative for sterling in the months to come”.
Krypta said that it was ING’s assumption that an election would soon take place in the UK and that the pound would sink to as low as €1.05 and $1.18.
Business pressure
Responding to the slump in the pound, a number of UK business lobby groups came forward warning against a no-deal Brexit, saying that the country wasn’t properly prepared for the shock.
The British Chambers of Commerce (BCC) said that preparations for a no-deal needed to be ramped up.
“The 31 October deadline is fast approaching and businesses are being told to prepare for no deal, but there are still significant areas where there is simply little basis on which to plan,” the group said.
UK cabinet ministers are meeting this morning where its guaranteed the slump in the pound – and what to do about it – will be discussed.
Meanwhile, eurozone business confidence fell to an almost six-year low in July, according to data published by the European commission. There was a negative reading for business confidence in the eurozone, the first since October 2013.
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Keep on winning BJ, keep on winning. When the clowns replace the ringmaster at the circus, there can only ever be one outcome. The next few weeks and months should be fun as the clowns will invariably not make many people laugh.
@Mumpsimus: the Irish government did already, a fair deal that took into account the border. The brits wasn’t too cherry pick now after initially agreeing. Look at their last vote, 8 options from no deal to staying and they couldn’t agree on a single one.
@Mumpsimus: Or maybe the little Englanders need to get a grasp on reality and realise they’re not the economic powerhouse they think they are and the rest of the world aren’t falling over themselves to do these “super” trade deals that Boris, Farage and Trump were espousing. The UK is now lead by a fantasist with a fascination for Churchill and a very poor grasp on detail and truth. It’s not up to The EU or Ireland to save them from themselves.
@Stephen Duggan: Everyone seems to be forgetting that the Brits want out and Boris must deliver. The way to a negotiated exit was not for the EU/ECB to impose punitive terms and then pull Varadkar’s strings by telling him they have his back when clearly, they will not deliver. In the end we will have bitter relations with the UK and the EU/ECB. No laughing matter Steve.
What the UK want to do to themselves and their economy is not really our concern. There is nothing we can do to affect “little Englanders’” grasp on reality
The important thing for Ireland is to get the best outcome for our economy and maintain peace on the island.
@Stephen Duggan: do you mean whining or actually winning, both could make sense, but would radically change the tone of your comment ,
IMO Boris sounds like more he’s growling in a self privileged perpetuating manner
@Denis McClean: The deal on offer is the one negotiated by The EU and The UK Govt. The UK parliament couldn’t agree on what type of deal it actually wants. The EU has very solidly shown solidarity with Ireland. Stop believing all the rubbish you’re reading in The Daily mail and Telegraph
@CrabaRev: The UK accounts for less than 10% of Irish exports. Despite what our whinging farmers say the effect on exports will be negligible and imports will be sourced elsewhere in Europe.
@Gary Kearney: Are you sure of that Gary? I read somewhere that it was the Irish government requested the backstop, with the backing of the EU. Something tells me if it was, this isn’t the scenario they were expecting.
@An bhearna: 10% in terms of goods, 17% in terms of service. Losing 10% of your market is a huge deal. Also remember that a large % of our exports are related to US muntinaltionals, so that UK 10% will have an even bigger effect on the real economy.
We import over 25% of our total goods from the UK. Any disruption to that supply or increases in pricing will have a serious knock on effect on our exports to other countries also.
A no deal brexit will have enormous negative repercussions for Ireland
@CrabaRev: it’s crazy, all those ‘positives’ (£39 billion not paid to EU and removal of the ‘undemocratic’ backstop) that Johnson claims the UK will gain from leaving without a deal will be the very things the EU put back on the table when the UK comes looking for a trade deal. Added to that, China will make you their lap dog when they see the UK coming cap-in-hand. Remember, you will need a deal with them way more than they will need a deal with you. America has already indicated that they want the UK to drop its standards in food production and quality if you wish to trade with them. And that’s only if you strike a deal that doesn’t compromise the backstop. Because the Democrats have already said they will block any trade deal that threatens the backstop.
@Mark:
I don’t disagree with most of what you are saying, but what’s with the
“you” reference?
Just to clarify, the Democrats said they will try to block any trade deal between the US & UK, if the UK leaving the EU damages the the Good Friday Agreement.
@Denis McClean: so be it. 2 years it took to get the deal, all parties signed it.
If Boris thinks he can bully his way through he is wrong dead wrong
The English Empire mentality they have going on, and which fueled a no vote in a small way needs to be assigned to the pages of history!
It’s not your ball and no u can’t take it with u!
@Mumpsimus: The good deal Britain is after will be at Ireland’s expense again, not Europe’s!! If the backstop is removed the UK is free to do deals with the US and China on the island of Ireland of the first time since we joined the EU. This results in Ireland becomes the backdoor to Europe for cheep un-EU taxed goods. How will the Irish economy and the inevitable IRISH border protrols deal with these cheep goods finding there way across the border?
@Peter Hughes:
You’re assuming that anyone who didn’t vote for the brexit party wanted to remain, which is a ridiculous leap to make. Conservative and Labour are both brexit parties too.
The markets do not have confidence in a post-Brexit Sterling. They want to be proved wrong. They want to believe. But in the absence of firm belief investments are slowly slipping elsewhere.
This would seem to mean that exports from the UK to the EU will be so cheap that any tariffs imposed by the EU will be negligible.
A no deal Brexit with a low exchange rate for sterling will therefore be brilliant for the UK.
Irish exports to the UK will be too expensive for UK buyers.
Time for EU Leaders to wake up?
@m flynsk: The cost of inputs will be massive as the currency is worth less.
Add tariffs into the equation and it could mean thousands of jobs lost overnight in UK.
@m flynsk: that’s only a temporary effect. Imports become more expensive and that introduces inflation (the prices of everything that have components from ‘abroad’ goes up)
That puts pressure on wages as the earned pound needs to stretch further as prices go up.
The temporary spike (before inflation kicks in) will be used by BJ and his clowns to claim that everything is fine and ‘we’re winning’
I’m not an economist but that’s my understanding and what I expect to happen
@m flynsk: It’s a little more complicated than that. That advantage will only apply to items created entirely within the UK economy, of which there are very few it any.
Most UK manufacturing requires components from Asia and EU economies, the prices of which will be impacted negatively by sterling. That will in turn increase the prices of the UK exports, as will customs delays at ports.
Agricultural exports from the UK will probably be banned from entering the EU, so they wont be of any benefit to their economy.
@m flynsk: This is all under the assumption that said exports rely solely on British sourced materials to make….. International trading really can’t be simplified down to a level of it’ll obviously sell more because it costs less so we’ll be fine.
There’s dozens of factors that will likely effect their exports on top of the falling pound….
@Niallers: oh, the old thousands of job losses overnight line, again. At the time of the reef dim they were told 900,000 job losses would be lost overnight, immediately after the referendum. At the end of 2018 Reuter’s did an in depth piece on city of London job losses, there had been 650, which had been totally negated by record levels of employment in both London and the entire UK.
@Darius Guppy: The “City of London” financial district is not a reliable indicator of job losses or gains. Where the real indicator lies is in manufacturing jobs. Nearly all of the major car assembly plants in England have announced job losses and temporary or permanent closures. The outcome will be far more than a measly 650 jobs in a dynamic bustling city. These jobs will and are being lost in areas of low income and even lower prospects which paradoxically are brexit areas.
@m flynsk: So they have great price on exports but import considerably more especially food, which will rise in price considerably. Not to mention a lot of the manufacturing in cars for instance is reliant on parts coming fro the rest of the EU. so that big industry is going to be hurt as well
@m flynsk: you seem to have forgotten how reliant the UK is on imports. Take, for example, the car manufacturing industry. Over 50% of the parts required to build cars in the UK have to be imported (probably another thing your gov didn’t tell you). With a weaker Sterling this would drive the production costs up making the cars less competitive.
The pound has slumped as a result of “market anxiety”. When the pound soars again it will be put down to “robust market expansion” or balance of payments improvements. Another cliche to watch is “business expectations”. The thing to worry about is frenetic gambling on currency fluctuations. Irish residents can contribute to economic performance by choosing to holiday with the kids in Kilkee or Enniscrone rather than Lanzarote or the Greek islands. Eat Wexford harbour mussels instead of Norwegian smoked salmon.
@Garreth Byrne: Lets hope The Norwegians don’t have the same mindset, or the Americans don’t decided to vacation in America instead of visiting the Emerald Isle. Protectionism generally damages economies.
@CrabaRev: Irish businesses operate a sort of reverse protectionism in charging holidaymakers higher prices for food and accommodation compared with their foreign counterparts in Norway or Lanzarote.
@Sean Oige: They don’t want you in Enniscrone. They want relatively wealthy Americans and Europeans who won’t think twice about paying €200 an night for a hotel or forking out €150 for a round of golf, or paying €100 a head for a nice meal and a bottle of wine. And don’t forget all the tips.
Off to Lanzarote with you cheapskate :)
It will be ok, phone Leo he will sort it. He will talk to europe like our goverment did back in 2007 and because we have a special relationship with them.
GB in free fall now be interesting to see where they land. Unfortunately they will do a lot of damage to our economy, they are looking to the Irish government to go cap in hand to them and tug the forelock on the back stop. Cannot see any good outcome dealing with them, we had very little off them before we joined the EEC. Wouldn’t like to see us go back to those days.
Before even entertaining and further talks the UK parliament needs to agree on what it wants. No point re-negotiating if it is brought back to parliament and rejected like previous deal.
To put it simply …
We need to find “shops” within EU to buy the stuff that “shops” in UK buy at moment.
Of course we might need to modify some of our products too.
Let’s make cheese instead of cheddae for example
Food for thought here – 1 billion pounds a week coming into the UK from Russian Oligarchs. In fact there will only be a couple of “examples” made (according to the video linked) . Watch this video of the Parliamentry session where it is discussed. The bit where someone says that maybe Russians should be targeted is funny.. They have a quick change of subject. Also, in this session they discuss whether or not to ban RT but that gets thrown out as well *As BBC journalists in Russia are spying and the UK doesnt want to get them kicked out (they are setting OFCOM on them and the up coming meeting on Digital safety will ensure that the internet will be cleansed of non Gov/security services cleared info. More than one way to skin a cat!! ) Here the Parl. Session in its full glory!! (not reported in MSM, obviously) LIVE: Foreign Affairs Committee hold session on Russian corruption and the UK Streamed live on 28 Mar 2018 (Pre Boris) https://www.youtube.com/watch?v=FkfYKjkYKnk
And of course the UK left the EU because of new laws on nuclear safety etc and financial matters. Heres an article showing one of the reasons why the UK (read City of London) HAD to leave the EU https://europeannewsweekly.wordpress.com/2018/04/02/the-problem-with-the-bbc-and-brexit-response-to-scientists-for-the-eu/
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