Belfast Telegraph

Cross-border boom doomed

Resurgence of pound signals the end of the influx of shoppers

Northern Ireland's latest cross border shopping boom may soon be consigned to the history books as the pound yesterday reached a 19-month high against the embattled euro.

Sterling hit a peak of €1.2222, as the European currency continued to fight off debt problems. In December 2008 it boasted near-parity with sterling.

Yesterday's peak was sterling's highest since the immediate fall-out of the financial crisis in November 2008.

The steady resurgence of sterling may spell the end of the boom for towns like Newry and Strabane, whose giant supermarkets welcomed a deluge of shoppers from the Republic seeking to take advantage of cheaper goods, the strong euro and lower VAT.

But coupled with the planned increase in VAT to 20% in January, the end may be nigh for the latest cross-border retail trend. Exporters may also start to lose out on the benefit of a weaker pound when trading in international markets.

Markets yesterday continued to fret about the European debt crisis, with the perceived risk of a default by Greece hitting an all-time high.

Leading shares across Europe lost ground, with the UK's FTSE and Germany's Dax indexes down about 1.5%.

Investors were concerned by comments by the US Federal Reserve on Wednesday evening, raising doubts about the strength of the economic recovery, largely reflecting "developments abroad".

The Fed said that the recovery was "proceeding", but that "financial conditions have become less supportive of economic growth on balance".

The pound strengthened largely on the back of negativity towards the euro. But it also received a boost from dissent in the Bank of England about whether to raise interest rates.

At the Bank's latest monetary policy committee meeting, Andrew Sentance disagreed with colleagues - including governor Mervyn King - to vote in favour of a rate rise. His action raised market expectation of future rate raises, rendering sterling more attractive to investors.

The pound has rallied nearly 20% since reaching a low of €1.02 in December 2008. But it has more catching up to do if it is to regain the €1.50 peak it boasted before the credit crunch.

Sterling's resurgence is mainly attributable to euro's difficulty as it has not enjoyed a similar rally against the dollar, which closed at $1.4887 yesterday against sterling.

Markets fear the the severe debt problems which have engulfed Greece and other Mediterranean governments may prove to be contagious and trigger a full-on banking crisis across Europe.

The beleaguered currency has plummeted nearly 20% against the greenback since its woes began in January. The euro has fallen 18.8% against the dollar since the crisis began in January.

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