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As the path of Brexit enters its crucial final phase, Lee Evans, Head of FX Trading and Strategy and colleagues in Bank of Ireland detail the latest developments in relation to Brexit negotiations, currency markets, and sector specific analysis

The latest set of Brexit negotiations have failed to produce a breakthrough in the key areas of the Level Playing Field (including State Aid), Fisheries and Governance. Both sides have still left the door open for further talks in the coming weeks, which means the path to a deal remains in place for now. In recent weeks the headlines from negotiations had struck a more positive cord – particularly from the UK side who made clear their intentions to bring talks into the final intensive ‘tunnel’ phase. EU negotiators insisted that insufficient progress on Fisheries had been made to bring talks into the ‘tunnel’.

Despite the Brexit uncertainty, the latest Bank of Ireland Business Pulse in October found that over half of firms are planning on expanding in the next one to three years, a bit below the pre-pandemic figure of three in five.

While farming has escaped the main brunt of Covid-19, Brexit looks set to be much more impactful for the sector. One encouraging development is that it is now expected that the UK will define its rules of origin so that Irish cattle and pigs slaughtered in Northern Ireland can be sold in the British market without any tariffs – even if no trade deal is reached between the EU and UK.

This could provide a solution where beef exports from Ireland could avoid some of the potential tariffs to be imposed on beef in a no- deal scenario. However slaughter capacity in the North would put a limit on cattle numbers.

Recently a €5bn Brexit Adjustment Reserve was established by Government, and there are hopes amongst industry bodies this could be tapped to provide exporters with supports in order to offset possible tariffs into the UK.

In Association with

Apart from UK tariffs, another major concern for exporters and importers is the impact of Brexit on the UK land bridge. A new direct ferry service to France from Rosslare has been mooted which could take 50,000 of the 170,000 trucks that travel from Ireland to the continent via the UK each year. A key issue is whether a new service could come close to matching the 20-hour journey time allowed by the UK land bridge.

Managing Currency

Currency volatility has had a significant impact on businesses across the country in recent times. The first step towards managing currency risk is to understand and quantify the exposure your business is open to. You need to review your costs and revenues to understand how exposed profit margins are to any changes in foreign currency rates.

Lee Evans explains that the net impact of the foreign exchange volatility depends on the nature of the business concerned. “If you have a higher margin on your product, you have a much higher tolerance for foreign exchange volatility. If your margin is 5 per cent it could be wiped out very quickly by exchange rate changes,” says Evans.

“There are ways for companies to reduce their exposure to rate changes such as by hedging forward,” Evans adds. “They can also look at getting customers to pay in euro, setting up foreign currency accounts, making changes to the supply chain to source materials from the UK, and creating an overall treasury policy for the business.”

Bank of Ireland Business Banking, Sectors, and FX teams have produced a new series of supports that can help you face the changes Brexit may bring with a greater degree of confidence.

These include a Proposed Tariff Changes Guide, a Revenue Guarantee Customer Checklist, and a Currency Risk Guide.

For further information, visit our Brexit Hub bankofireland.com/brexit/