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An Economic Postmortem and Forecast of the Impact of the British Election

by | Jul 28, 2017 | AHEAD OF THE CURVE |

The impact of the British election both on the Republic and more evidently the North has been muted as the topic of choice among the public  by the far less economically prominent tails of Love Island and other “Reality shows” ( IF you can call them that ). So I would like to take the opportunity to reignite the interest briefly in Theresa May’s decision and the impact it has had on the Irish economic market and selfishly what is in store for the next 6 weeks and beyond for Ireland?

Here are some of the ways that the British election could affect Ireland in long term and what has happened up to now:

Theresa May’s main purpose for calling an election was that she needed a stable majority in order to negotiate the UK’s way out of the EU. Talks on Brexit were due to begin 11 days after the election. This unexpected election & result has, to use the age old phrase, “ Put the cat among the pigeons “. It’s likely she will be pushed towards a hard Brexit policy. This is not good news for Ireland, as you probably already know, because in general the harder the Brexit the worse it will be for us, as the greater the break between Britain and Europe the bigger the threat to trade between Britain and Ireland

Overall the “hit” to growth could, at worst, be close to 4 per cent after 10 years, and most of this would be in the first five years after Brexit. So not far off one percentage point could be knocked off growth in the initial few years after Brexit happens, assumed to be spring 2019.

Total employment could be 40,000 below what it would otherwise be after a decade, again with the biggest impact in the earlier years. The analysis does not take into account the impact of measures the Government could take to mitigate the Brexit impact.

The chairman of Fine Gael’s National Executive Gerry O’Connell tweeted after the exit poll was released that “If the Tories blow this tonight it’ll make ‘Keep the Recovery Going’ look like John Kennedy’s New Frontier”.

Theresa May had essentially a two-pronged approach to her election strategy. She offered something “strong and stable” while Jeremy Corbyn could create a “coalition of chaos”.

And it was supposed to be all about Brexit. It was a serious misjudgment. UK voters already showed a taste for chaos when they voted for Brexit 12 months ago, and it appears Mrs May hadn’t factored in a bite back from the disgruntled members of the public, and with the aid of hind sight what a mistake this was!

A major debate on security was never part of the plan but the terrorist attacks put another pressing issue on the agenda. Aside from anything else, refusing to debate your rival during the campaign was a seriously bad move that ensured we got plenty of head to heads between Leo Varadkar and Micheál Martin when the time came in our own electoral field for a general election.

With analysts fretting over a hung parliament, the pound fell in value immediately but has been recovering slowly but surely since. In early trading it plunged to a seven-month low and by as much as 2.2pc against the Euro. At the moment £1 is worth around €1.13.

This exchange rate is good news for online shoppers who will be able to get some bargains, which is great news for all those in the market for a new hand bag or even a dart at the online summer sails in ZARA! However, the uncertainty created a major problem for Irish exporters who were hammered when trying to sell their goods into the UK. As the pound slowly recovered so too did the export market for the strawberry farmers of south east to the beef industry farmers of the midlands.

Postmortem complete, what is coming down the road for Ireland and what can we learn from the shock-waves created by the treat to the economic love affair that is Britain and Ireland?

Firstly it was no shock that the export markets were hit which not only reaffirms the dependency we have on Britain as a trading colleague but also it leads to eager and somewhat anxious anticipation to the aforementioned “Hard Brexit”.

The biggest threat comes from disruption in trade to Britain. If Britain leaves the European Union with no agreement on future free trade between the two, then the likelihood is that special import taxes, or tariffs, would apply on trade between Britain and EU countries. So Irish exporters to the UK would face tariffs, which would, in theory, push prices up in the shops and make our products less attractive. The fact that Britain is expected to grow more slowly – and that this will affect EU growth – will also affect our exporters. That said, the British economy has so far held up better than expected, but remember Brexit hasn’t happened yet.

So if Britain and the EU can agree future trading arrangements with no tariffs, or tariffs smaller than those set down by the WTO (World Trade Organisation), the hit will be less. The initial mood music before the talks suggests this will not be easy given the muck storm created in EU headquarters by Britain’s decision; it is highly unlikely they will meet Britain’s demands with open arms.

Some sectors are particularly exposed. Tariff levels have emerged over many years of international trade. For historical reasons – and because countries have wanted to protect their own farming sectors – tariffs tend to be higher on heavier products, particularly foodstuffs. So tariffs on some of our main industries such as meat exports,  would effectively price many Irish producers out of the UK market, and out of business in the long term.

Atop of all these economically specific threats, there’s also the fact that Britain leaving the European Union is quite similar to your big brother moving out of the house at home and you have to fend for yourself. By that I mean, as the Brexit momentum and seemingly inevitable event approaches, we stand to lose, what was an old foe, but in modern day Ireland is a close neighbor and economic friend. As they say time will tell but in my young opinion this is sure to be a period in Irish, European and world economic history that will be covered in Leaving Cert exams for many years to come.

Daniel Nagle
Trainee Financial Planner

 

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