Belfast Telegraph

Double-edged sword as importers feel benefits but exporters' profits slashed

By Margaret Canning

The strong sterling is putting many of Northern Ireland's producers at a disadvantage – and things are not expected to improve in the short-term, economists have said.

Sterling has risen by as much as 10% over the past year, with the euro in particular feeling its increasing might.

The currency trend means that your pound will buy you much more if you go on holiday to Continental Europe – on the other hand, it means that producers are struggling.

The Northern Ireland Chamber of Commerce has estimated that producers have lost 6% of their profit margin on a year ago if exporting to the eurozone – or 9%, for those exporting to the US.

Chief executive Ann McGregor said: "Businesses fear that sudden currency shifts could mean the difference between trading at a profit and a loss, and such concern may inhibit smaller companies from exploring and exploiting the opportunities that are continuing to develop today in global markets including China, India, Brazil, Russia and South Africa." She added: "A faster growth in exports is a key theme in the Executive's Programme for Government. Therefore, addressing these issues and providing businesses with steps to overcome these barriers is essential."

Bank of Ireland analyst Alan Bridle said a stronger currency was good news for consumers and bad news for producers.

"It effectively means that the purchasing power is transferred from the producer to the consumer. It keeps import costs down, and as far as the consumer and household is concerned, there's a small benefit that way."

But for many exporters, it brought difficulties, he said. "It's a mixed picture and depends on what part of the spectrum you are on – if you are competing on price, it will be disadvantageous."

It would be particularly detrimental for a producer in Northern Ireland – for example, those in the food and drink sector – who was competing with producers in the Republic to selling into Britain.

The weaker euro would make the goods from the Republic cheaper than the goods from Northern Ireland, he said.

But if you were a producer who competed on the basis of quality rather than on price, it will have less of an impact – and he cited Germany as an example of a country with strong manufacturers which competed on quality, and which prided itself on its strong currency before joining the euro.

He said the pound was likely to strengthen more in coming times.

"There won't be a lot of relief in the short-term as the prospects for the euro area are likely to remain weak.

"We've seen the UK talk about tightening its monetary policy slightly with a slight increase in interest rates, but the European Central Bank in fact cut its interest rate to 0.25% recently."

The euro could fall against the pound even further, to around 78p – but he said the current dollar exchange rate, with £1 buying $1.70, was likely to be as far as the £1 would rise against the dollar.

Brian Telford of Danske Bank said the strengthening pound was "a double-edged sword".

"As a potential tourist it all looks more attractive and might attract more people to go away.

"If you are a business importing plant and machinery, your money might go a bit further than it was, but as an exporter trying to sell things abroad, it's probably not as easy as it was.

"For some businesses, levels where the £1 is above €1.25, it does start to eat into your profits – and it could be the difference between making a profit or not."

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