Belfast Telegraph

Uncertainty is still the theme of life after EU vote

Economy Watch by Richard Caldwell, managing director of personal banking and small business at Danske Bank

As news filtered through that Donald Trump had shocked the world by winning the US Presidential election, I was taking part in an early morning debate on what, up until that point, was by far the biggest news story of 2016 - Brexit.

Organised by the Belfast Solicitors' Association, in partnership with Danske Bank Private Banking, the event looked at Brexit from an economic, business and legal perspective.

The uncertainty on financial markets that met Mr Trump's unexpected victory was definitely reminiscent of the aftermath of the Brexit referendum vote.

There will be plenty of discussion on what a Trump presidency means for trade between the US and Northern Ireland and the high level of US foreign direct investment that has flowed into Belfast in recent years. The Trump camp has been characterised as having a "protectionist" agenda in light of its promises to bring jobs back to America that have gone offshore. That sort of rhetoric may be unsettling for those at Stormont charged with helping Northern Ireland attract that investment. But if Mr Trump's proposed infrastructure spending splurge happens there could be benefits for Northern Ireland companies in the construction and mining equipment sectors.

Since the UK voted to leave the EU on June 23, there has been a considerable amount of speculation about how it will affect the Northern Ireland economy, local businesses, and consumers.

Since the vote we have seen volatility in the currency markets and a significant drop in the value of sterling. In August we experienced a 0.25 percentage point cut in interest rates which now, sit at an all-time low of 0.25%. So far, these are the only two real tangible outcomes from the vote to Leave.

We have adopted an approach of 'stay calm and carry on' until the picture becomes clearer. We are dealing with the known facts rather than speculating on the unknowns.

What I have seen is businesses adjusting to the new situation. We are working with customers to look in depth at their currency exposure - both direct and indirect - and how the falling pound affects all aspects of their business.

In any supply chain, even one where your supplier is in the UK, if the product is made outside the UK, there is an exchange rate risk or cost somewhere in the chain.

With the pound hitting 30-year lows, there are opportunities for exporters to boost orders and profits in the short-term and we have seen order books increase for some key exporting customers. But, on the downside, customers are also seeing import prices rise. We are a net importer and lots of our customers are seeing a range of input costs rise. The result is an increase in the cost of goods and services, which will ultimately fuel inflation.

Low interest rates are helping borrowers in business and personal markets. We have been able to offer very attractive mortgage rates and significantly grow our share of the local mortgage market and I'm sure these low rate and cashback deals will remain a feature of the market in the short and medium term. Low rates are not good news for savers, especially those with sizeable deposits who are reliant on interest income to support living expenses. Unfortunately there are probably more significant "unknowns" than "knowns" at the moment.

The EU may have exacting standards and lots of red tape, but many businesses here would have preferred stability and continuity of access to the single market and to the EU trade agreements with non EU countries. For households, it is very much a case of wait and see. In the short-term I don't think we will see unemployment rise or house prices fall.

We have not seen any existing business investments put on hold as a result of Brexit. They are all going ahead, but we have seen a weakening in demand for new lending amongst larger companies, as uncertainty continues regarding what the details may be within the eagerly awaited Brexit plan.

  • In next week's Economy Watch, we hear from Neil Gibson of the Ulster University economic policy centre

Belfast Telegraph