Northern Ireland is unlikely to benefit in the long run from an influx of shoppers from the Republic if the pound weakens further after Brexit, the North's Department of Economy has warned.
In recent months retailers in Northern Ireland have reported a strong increase in the number of people from the South who have taken advantage of the euro’s strength against sterling to buy items from groceries to luxury products.
A report by the Department for the Economy on the potential “impacts of sterling depreciation under a no-deal scenario” states that although weaker sterling should encourage people from the South to travel North this might not happen after Brexit.
“This is only likely to happen if prices in NI are not adversely affected which, given the impact of depreciation on the cost of imports and inflation, is unlikely to be the case. Therefore, any benefit of a weaker sterling for Irish cross-Border shoppers would be short lived as the cost of goods and services increase in the medium to long term. The uncertainty around customs and VAT requirements may also have an impact on the number of cross-Border shoppers in NI,” notes the report.
According to the department any further decline in sterling is also unlikely to help exporters in the North.
Although the report acknowledges that “weaker sterling has traditionally been seen as good for exporters and bad for importers” it warns that this fails to take take account of the “full intricacies of all-island trade”.
“Whether exporters benefit from a weaker currency will also depend on the scale of tariff and non-tariff barriers they face in a no-deal scenario. The scale of these will depend on the type of good or service being exported and the destination country. While this will vary from business to business, overall the majority of NI’s exports go to countries within the EU [57 per cent in 2017], with Ireland being our most prominent trading partner,” states the report.
One other aspect when it comes to the prospect of a much weaker pound after the UK leaves the EU is the impact it could have on the North’s agricultural sector.
Will there be high tariffs?
In the past depreciation of sterling has been beneficial to the agricultural sector because producer prices and direct payments have increased when the pound is weaker against the euro.
But the department warned that if there is no-deal Brexit “there is some reason to doubt whether any depreciation of sterling following a no-deal exit would have the same effect”. And the department also highlighted that Northern Ireland producers will likely face potentially high tariffs and market disruption.
Overall, the department concluded that any further drop in the value of the pound following Brexit “is likely to represent a risk to the Northern Ireland economy and to those on low incomes in particular”.
Separately, the Northern Ireland Retail Consortium has also emphasised that consumers in the North would feel "cost rises first and hardest" from a no-deal departure.
Consortium director Aodhán Connolly said that if the UK leaves without a deal there will be immediate supply-chain issues for retailers.
“The NIRC’s own assessment has shown that soft fruits and vegetables, such as strawberries, tomatoes and lettuces, would likely see reduced availability as they are largely imported during the winter months.
“The reality remains that a no-deal Brexit in October would present the worst of all worlds for our high streets and those who shop there,” he said.
