Focus on border as factory output booms

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Investors are focusing on the threat of a hard Irish border scuppering tense Brexit talks involving Ireland, the EU and the UK, as European manufacturing surveys showed factory output racing ahead at its fastest pace for 20 years.

However, sterling slipped from a two-month high against the dollar and traded lower against the euro, at 88p, as investors flagged concerns about the UK reaching a deal with the EU over the border.

Despite the huge headwinds caused to Irish manufacturing following the 16% slump in the value of sterling against the euro since the UK’s vote last year to leave the EU, the latest monthly survey suggested manufacturing had grown dramatically, with growth in output posting a near 18-year high.

The Investec Irish Manufacturing Purchasing Manager’s Index climbed in November from the previous month at its fastest pace since December 1999.

According to the survey, demand from home and abroad is helping to boost profits at a significant rate. Irish factories are likely to hire more staff, with prices increases helping offset higher raw material prices.

Irish manufacturing firms “remain very upbeat about the prospects for the sector” next year, said Philip O’Sullivan, chief economist at Investec Ireland, as global growth accelerates.

“Given the extent to which the Irish economy is leveraged to international developments we believe that manufacturers here are right to feel confident about the future,” he said.

Other manufacturing surveys showed eurozone factory output was rising at its fastest since 2000.

And UK factories had their best month in more than four years, suggesting manufacturing will give a boost to the country’s otherwise sluggish economy going into 2018.

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Still, the British factor data was not as strong as the eurozone’s, suggesting the pound’s fall since the Brexit vote has yet to give British factories a big advantage.

Sterling slipped, as focus returned to the Brexit talks and the prospects for the re-emergence of a hard Irish border halting progress in the Brexit talks. The pound had jumped earlier this week on a London newspaper report that the UK and the EU had reached agreement on a divorce bill and were close to agreement over the border issue.

However, not all investors are convinced that a deal can be easily reached over the border.

“This week’s sterling bounce on reports that the UK has accepted a higher financial divorce settlement with the EU seems based on the false assumption that the way is now clear for the European Council on December 14-15 to authorise moving on to the next phase of the Brexit process,” said Christopher Granville, managing director at investment research firm TS Lombard.

“To get to that next stage, however, two further agreements are required. One, on citizens’ rights, looks relatively easy. The same cannot be said of the other — on the Irish border,” he said.

“The overall impact on sterling (from the UK data) is very muted as investors are more focused on Theresa May’s upcoming meeting with EU’s Jean Claude Juncker”, Think Markets analyst Naeem Aslam said, referring to Ms May’s meeting with the president of the European Commission next week.

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