Sterling resumed its dive amid warnings that a crash-out Brexit in late October would sink the currency — and the prospects for many Irish firms.
Making matters worse, Britain’s Brexit minister, Stephen Barclay, told MPs that markets had “under priced” the risk of a no-deal Brexit at Halloween.
The UK currency fell again against the euro, to less than 90.4 pence, and slid against the dollar, to well below $1.24.
Arch-Brexiteer Boris Johnson is the favourite to become Conservative Party leader next week and hence the next prime minister.
Mr Johnson and his opponent for the leadership, Jeremy Hunt, have been vying with each other to show Tory party members their willingness to force a hard Brexit.
“The two contenders are loopers. They either don’t know what they are doing or they are really reckless,” said professor of economics at DCU Business School, Edgar Morgenroth, who is one of Ireland’s leading experts on Brexit.
“It is a crash-out Brexit or they are going to have to eat their words,” he said of the hard-line talk from Mr Johnson and Mr Hunt.
Mr Morgenroth, in a previous role at the Economic and Social Research Institute, helped model the potential effects of Brexit on Ireland, sector-by-sector and region-by-region.
The price of sterling is very important for all exporters here selling into Britain across the Irish Sea.
The lower it falls towards parity against the euro, the harder it is for Irish firms, and small firms in particular, to make money on their goods and services they sell into Britain.
And even if a hardest of hard Brexits were avoided, the ills of the UK currency and uncertainty about the reimposition of tariffs within Ireland could wreak damage to many Irish small firms who cannot afford to take out costly insurance against currency losses.
“For smaller Irish firms, it is harder because they may not be able to get contracts in euro,” Mr Morgenroth said.
He believes that the Government should have done more to get Irish companies to do more to strengthen their defences ahead of a crash-out by Britain.
Sterling may fall to parity with the dollar on a no-deal Brexit, according to Morgan Stanley, and to $1.10, according to HSBC strategists.
A drop to historic lows of $1 to $1.10 would come under the market’s worst-case scenario of the UK leaving the European Union without a deal, a risk that the bank says is growing.
Meanwhile, Visa’s regular Irish consumer survey by market researcher IHT Markit suggests that spending fell last month at its sharpest rate for five years.
The survey is important because it tracks all types of spending, including online, cash and cheques, and not just spending by cards.
Visa Ireland’s manager Philip Konopik said it was “a cause of concern” as online and in-store spending both fell.
“Indeed, only three sectors posted increases in expenditure last month as Irish consumers remained cautious of their purse strings,” he said, with a steep fall posted for clothing and footwear, but a sharp increase in spending for hotels, bars and restaurants.
With UK economic data also showing the UK economy struggling, putting more pressure on the Bank of England to ease monetary policy, investors are taking to currency derivatives and futures markets to bet on more weakness.
“Clearly the issues facing the UK currently have not been faced in the last decade or so, even during the global financial crisis, and the potential for the pound to hit the 2016 lows is there,” said Neil Mellor, a senior currency strategist at BNY Mellon in London.
In October 2016, the British currency dropped briefly below $1.15, its lowest in more than three decades, during a flash crash in the currency markets in early Asian trading hours.
It has since recovered, strengthening to nearly $1.34 earlier this year.
But fears the next British prime minister will drag Britain out of the European Union prompted traders to dump sterling in recent days.
Sterling has lost 1% against the euro this month and around 2.3% against the dollar, putting it on track for its biggest monthly drop since June 2018.
It is this year’s worst-performing G10 currency against the dollar.
“These are all risks we’ve known about for months, so it’s not new” — but sterling was pricing in the risks in recent days, Nomura strategists told clients.
In London, house prices fell at the fastest pace in almost 10 years in May, according to new official data that also showed inflation hitting the Bank of England’s 2% target for a second month running in June.
Prices there, which have been hit by Brexit and its impact on the city’s attractiveness as a global finance centre, slid by 4.4% in annual terms, the UK’s Office for National Statistics said.
That marked the biggest fall since August 2009.
Reflecting the weakness in the property market since the Brexit referendum more than three years ago, house price growth across the UK as a whole slowed to 1.2%, matching February’s six-year low.
Some other surveys have suggested that the market might be borrowing out and analysts said London’s dip was not likely to be followed by the rest of the country.
“The downturn in London probably isn’t a sign of an impending slump elsewhere, but instead reflects the slowdown in net migration, a glut of new-build flats and valuations correcting from excessively stretched levels,” said Samuel Tombs, economist at consultancy Pantheon Macroeconomics.
London house prices are now 6.4% below their July 2017 peak, a disappointment to some homeowners but a much smaller fall than the almost 18% peak-to-trough hit during the global financial crisis.
Furthermore, the current downturn in the UK capital represents only a small hit given that London house prices have almost doubled since the financial crisis, leaving the city unaffordable for many buyers.
Zoopla, an online property portal, said it the breadth of price falls across London’s boroughs was narrowing and it expected the price declines to moderate over 2019 and 2020.
Separate data from the UK showed not only stable consumer price inflation at 2%, but also weaker pipeline price pressures faced by British factories.
“While the UK consumer price inflation backdrop appears relatively benign, the fact that wage growth is holding up suggests it’s too early to be thinking about [UK] rate cuts,” ING economist James Smith said.
“But the increasing uncertainty surrounding Brexit suggests policy tightening is equally unlikely this year.”
Additional reporting: Reuters and Bloomberg
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