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Cross-border trade damaged by weak pound, expert warns

By Margaret Canning

Published 05/10/2016

The plummeting value of the pound, which has reached a new 31-year low in response to Brexit messages from the Conservative Party conference, is having a
The plummeting value of the pound, which has reached a new 31-year low in response to Brexit messages from the Conservative Party conference, is having a "destabilising effect" on cross-border trading, it has been claimed

The plummeting value of the pound, which has reached a new 31-year low in response to Brexit messages from the Conservative Party conference, is having a "destabilising effect" on cross-border trading, it has been claimed.

And manufacturers are facing an extra 15% on their input costs as sterling drops, a manufacturing group has said.

The pound yesterday fell 0.8% against the US dollar in afternoon trading, to $1.273, its lowest level since 1985.

Sterling also fell 0.68% to a five-year low against the euro at €1.137, its lowest since October 2011. And the FTSE 100 came close to an all-time high as it closed at 7074.34, its cohort of mainly-overseas firms benefiting from the weaker pound.

The markets were responding to Prime Minister Theresa May's announcement that Article 50 would be invoked by the end of March, starting the two-year process of exiting the EU.

But economist John Simpson warned that the border area of Northern Ireland now amounted to a "currency frontier" that was changing from day to day.

"This fluctuation could wreck the stability of commercial relationships on the island," he said.

"We are going to have to live with a fluctuating exchange rate and there's nothing we in Northern Ireland can do about it, and nothing that the Bank of England can do either."

Ann McGregor, chief executive of Northern Ireland Chamber of Commerce and Industry, said the weak pound was currently making our products and services cheaper for foreign customers to buy.

"In the short-term at least this makes us more competitive," she explained. "It may also encourage more local firms to consider exporting because of the potential rewards.

"But it can also drive up import costs meaning higher prices in the shops and higher costs for local manufacturers.

"It really is a wait and see game in how sterling recovers from the string of recent announcements around Brexit."

But Stephen Kelly, the chief executive of Manufacturing NI, said the trends were "worrying" for members.

"The steep decline in the value of sterling has effectively added 15% to the costs of raw materials - usually the first or second largest input cost," he added.

"As yet, output prices have yet to follow this sharp rise in costs - which means that we could be storing up problems as margins are cut.

"These rises in input prices need to be reflected somewhere, either in headcount or investment, so it's up to government to bear down on other costs of doing business and to find ways to bring confidence and a stimulus."

Mr Simpson said judgments that Brexit had little effect on the economy had been premature.

"It's a judgment we shouldn't make for six to nine months when we begin to see the outcome of negotiations," he added.

Meanwhile, cider manufacturer C&C, which produces Magners, has said that a change in the UK and Ireland's trading relationship would lead to increased costs and bureaucracy for its business, impacting suppliers from Northern Ireland and the Republic.

Belfast Telegraph

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