With one week to go to a crucial vote on the Brexit withdrawal ageement in the UK's House of Commons, the business lobby group Ibec has warned that the sterling exchange rate could fall between 10% and 25% if the deal is rejected, plumetting to an "unprecedetented" €1=£1.10.
"Recent forecasts by the Bank of England paint a bleak picture for Irish exporters in the event of a no-deal Brexit," Ibec economists wrote in the organisation's latest quarterly economic outlook this Monday. "At these levels, large numbers of Irish firms would not have sufficient margins to supply the UK market without complete price pass-through to British consumers." This would make Irish agri-food products much more expensive for British buyers.
By contrast, maintaining close economic ties under the proposed withdrawal agreement is forecast to push the value of sterling down by 2% to 5% compared to 2018, with this year's average exchange rate remaining at the current level of €1=£0.90. This is the limit over which most agri-food exporters surveyed by Bord Bia last year said they would experience serious difficulties.
The early part of 2019 is likely to be a period where margins will be squeezed for
many Irish exporters
"As it stands the early part of 2019 is likely to be a period where margins will be squeezed for many Irish exporters," Ibec economists warned.
Aside from exchange rate, the authors also highlighted the uncertainty surrounding the UK economy itself, which is the largest market for Irish agri-food exports. "It is very difficult to measure the impact that Brexit will have on the UK economy as a country has never left such a large trading block before. Therefore, there is no precedence to estimate the magnitude of the shock or the speed of adjustment," they wrote.
In Ireland, Ibec noted recent contingency plans published by the Government and the European Commission for a hard Brexit, but said they should be expanded with much-needed information on how this would be managed on the ground. "We urge them to work collectively to bring forward more meaningful measures to support business," the group said.
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