Concern for Irish exporters as sterling takes fresh pounding

The value of sterling against the dollar fell to a five and a half year low yesterday and held at six-month lows against the euro on the back of disappointing industrial production figures.
Manufacturing endured its largest fall in over two years in November, highlighting concerns about the UK economy’s recovery.

Worries about the UK’s future in the European Union and an uneven domestic economic recovery have weighed on the pound since the start of the year.

That’s prompted markets to even further delay their calls on the timing of when the Bank of England will announce its first interest rate hike.

The pound fell 0.5pc to $1.4470 as of mid-morning yesterday, after touching $1.4459, the lowest since June 2010.

By mid-afternoon, €1 was worth 75p sterling.

Industrial output dropped 0.7pc from the previous month. Economists had been expecting no growth.

Separate data showed that retail spending in the UK over Christmas rose by a “disappointing” 0.9pc in the three months to December compared with a year earlier.

“Despite a number of positive economic indicators, retail sales over Christmas were relatively flat with more products on discount and the depth of discounting also deeper,” said David McCorquodale, head of retail at accountancy firm KPMG, which sponsors the survey.

A weakening sterling against the euro is bad news for Irish exporters. A gain in the value of the euro against the UK currency cuts margins for Irish exporters selling into the UK.

Sterling has had a volatile start to the year.

On Friday, this newspaper reported that it had gained by about 6pc against the euro since the beginning of December and was trading around a three-month high.

British economic growth slid to its joint-weakest in nearly three years in the three months to September, and financial data company Markit said its December survey of purchasing managers pointed to only a marginally faster expansion in late 2015.

Meanwhile, International Monetary Fund chief Christine Lagarde said the dollar could rise further if divergence between the Federal Reserve and the European Central Bank and the Bank of Japan continues.

“In the euro area and Japan, weak growth and low inflation call for continued accommodation. In the US, firming activity laid the ground for monetary policy normalisation by the Federal Reserve,” the IMF chief said in a speech in Paris.

“The lift-off has gone smoothly. It was clearly communicated and priced in by financial markets.

“The key issue going forward will be the pace of normalisation. If financial tightening by the US were to coincide with further easing in the euro area and Japan, there could be further dollar appreciation”

Ms Lagarde added that further interest rate hikes by the US Federal Reserve should be based on “clear evidence” of higher wages and prices,

On China, Ms Lagarde said the rebalacing of the economy would ultimately benefit everybody in the long run.

But she warned that the transformation would have spill-over effects through trade and lower demand for commodities.

“Not only have oil and metals prices fallen by around two-thirds from their most recent peak, but supply and demand side factors suggest that they are likely to stay low for a sustained period,” she said.

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