Pound edges closer to parity with euro

THE POUND dropped to a record low against the euro yesterday, breaking through the 95 pence level for the first time and edging ever closer to parity.

Sterling finished the day back slightly at 94.78 pence, following an announcement further interest rate cuts are likely from the Bank of England.

Charlie Bean, deputy governor of the bank, told the Financial Times that zero interest rates were a possibility in the UK and that the government was likely to pump billions more into the banking system as the economy kept slowing.

The continued weakening of sterling is likely to cause further headaches for Irish businesses, with food and beverage groups significantly affected. They will now face significant downward revisions to earnings as sterling profits are converted under less favourable exchange rates.

With parity now clearly in sight, Rossa White, an economist with Davy Stockbrokers, described such a prospect as being "disastrous news for Ireland's indigenous exporters and for the tourism industry here".

About 18 per cent of Ireland's goods exports - largely focused on agribusiness, food manufacturing and less high-tech fabricated metal products - and 17 per cent of service exports go to the UK. British tourists also account for 50 per cent of visitors to Ireland, and the decline of the pound is hitting their purchasing power.

Comparing the current situation to the early 1990s currency crisis, in which the punt/pound exchange rate was just over £1.10, Simon Barry, senior economist with Ulster Bank, said the 95 pence level corresponds to £1.20 in "old money". On the Irish Stock Exchange, stocks with exposure to the UK such as Kingspan were weak yesterday, although Greencore, which transacts about three-quarters of its business in the UK, finished the day up 3.3 per cent to €0.95.