Four years on from the Brexit referendum, a deal was accepted in January 2020, which signified the official withdrawal from the EU.
Across the sea, Ireland remains within the EU. As of 2016, the UK was Ireland’s greatest trade partner with approximately ‘€1.2 million of goods and services traded between us every week’ according to the Irish Times. The same source states the UK and Ireland’s economies are so tied that when the UK economy grows by 1% Irelands grows by 0.3%. So how will Brexit affect businesses and trade between these nations?
The Exchange rate
With Ireland having the Euro as its official currency, it is important to analyze the relationship between the Euro and the Pound. The Pound is a free floating currency, and after the Brexit referendum demand for the Pound fell rapidly, sparking a mass sale, reducing its value.
As shown above, Brexit was the catalyst for a large depreciation, in just one month the exchange rate with the Euro fell from 1.26 to 1.19, a drop that the Pound still has failed to recover from. Right now, the rate stands at 1.11, a 12% drop from the rate in June 2016.
Businesses and trade?
There are multiple reasons as to why Brexit may affect trade between the UK and Ireland. Firstly because of the weak Pound, importing goods and services becomes more expensive for the UK, potentially causing a reduced demand for them in the long term.
However, it is not only imports that could be an issue, but the level of exportation to Ireland will be affected too. In fact, recent statistics actually show that exports to Ireland could be jeopardized more than imports. An article by the Irish Times mentions that in 2017 the UK accounted for 24% of Irish imports, a figure that is €3 million more than the value of exports to the UK. A Brexit that comes with tariffs would cause sharp increases in the price of these imports to Ireland.
In regard to businesses, an article written by RTE, an Irish broadcaster, states that in Ireland micro-businesses make up 90% of all companies, and small businesses take up another 8%. Together these enterprises account for 85% of Irish exports to the UK. Considering the likely implication on trade of Brexit, the near future does not look so bright for these enterprises, who may not just struggle to sell into the UK, but source in raw materials they need for their supply chains.
Reports also suggest that businesses in the UK will also be worse off. According to the Chartered Institute of Personnel & Development, the UK experienced a 95% fall in EU national immigration between Q1 2016 and Q1 2018, leading to 44% of employers struggling to recruit and 34% struggling to retain staff.
Given the data available, it’s hard to see a future where the UK and Ireland aren’t challenged. Trade is likely to decrease as the Pound falls and tariffs are introduced, causing a damaging knock on effect to small businesses in particular, who will suffer from trade difficulties.
More on Brexit: click Never Ending Brexit Story & Pound’s Reaction
— Fyggex (@fyggexchange) August 12, 2020
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