The value of sterling nosedived this week after governor of the Bank of England Mark Carney ruled out a rise in UK interest rates in 2016, citing weak economic growth in the UK and the continuing turmoil in global financial markets.
Sterling fell to more than £0.77 against the euro after Carney’s announcement, its weakest point against the single currency in over a year. With €4.4bn or 41% of Irish food exports sent to the UK last year, the sudden depreciation of sterling against the euro will be a major concern for Irish exporters.
The weakness of the euro against sterling throughout 2015 served to boost the competitiveness of Irish exports on UK shelves. Irish food and drink exports to the UK grew by 7% in 2015, with the greatest driver of this undoubtedly the favourable currency tailwinds.
The euro weakened by almost 11% against sterling at one point in the year, with the single currency particularly weak during the period between early March and late August 2015.
However, with global markets in turmoil since the start of 2016 amid concerns over an oil supply glut and the economic health of China plaguing investors, the Bank of England governor has decided to hold his position and wait before any rise in UK interest rates.
Carney said the time was not right for a rise in interest rates, as UK growth would be too weak in 2016, especially set against the backdrop of the present fragility in the global economy.
The impact of the news saw the value of sterling fall against both the euro and the US dollar on Tuesday this week, an outcome clearly intended by Carney and welcomed by UK markets, as a weaker pound will only help UK exports.
Coupled with Carney’s bearish economic outlook, the uncertainty around a British exit from the euro zone will only intensify over the coming months as we move closer to a referendum date (possibly sometime in summer 2016), meaning the weakness of sterling could be here to stay for an extended period.
Should this be the case, Irish food and drink exporters will find themselves operating in more challenging market conditions with much of the competitive advantage enjoyed over the last 12 months wiped away.
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Weak euro helps Irish food exports grow by 3% to €10.8bn