THE CENTRAL BANK has warned that a no-deal Brexit could lead to increased grocery costs for consumers but said that several factors could help retailers keep prices down.
The price warning and the effects of a hard Brexit on the economy have been brought into sharp focus by the Central Bank in its latest quarterly bulletin.
The Central Bank’s report looked at the potential impact of a no-deal Brexit on the price of groceries, noting that “increased tariffs and trade costs may be passed on to consumers”.
On the cost of trade, the research points to “additional shipping costs to Ireland” if goods are required to comes from further afield than the UK.
It adds that the sectors most exposed are bread and cereals.
Despite this, analysts within the Central Bank have said that there are several factors that may guard against consumers actually having to pay higher costs for their groceries.
Among those factors are an overall profitability within the Irish retail sector which means that supermarkets may have enough room within their margins to keep costs down.
“One implication of that, for example, is there’s maybe a little bit more scope, either for retailers to absorb some of the higher transport and trade costs, but also maybe more inclination for UK retailers to stay in this market, because of higher profitability, in the event that their trade costs become more expensive,” explained the Central Bank’s director of economics and statistics Mark Cassidy.
There are also offsetting factors: for example, you would expect to see an exchange rate depreciation that will put downward pressure on food imports. Second, we’re talking about imports of certain brands and products. So there’s also the potential for Irish consumers to switch to substitute brands or similar brands.
Jobs
On the wider economy, the report says that a no-deal Brexit could cost Ireland an estimated 73,000 jobs by the end of 2021 and increase unemployment from its current rate of 5.3% to 6.9% over that period.
The figure of 73,000 takes account of both job losses and the cost of jobs not created that might otherwise enter the economy if an orderly Brexit takes place.
These lost jobs would be in the sectors most vulnerable to the effects of Brexit such as agriculture and tourism.
However, the Central Bank is predicting that if a deal is secured, the country could ride out the effects of Brexit to actually decrease unemployment over that period to 4.8% in 2020 and 2021.
The nature of Brexit would also have a significant effect on the potential for GDP growth, with the Central Bank saying a figure of 4.3% could be achieved next year if there’s a deal. That figure plunges to 0.8% in a no-deal scenario.
The two predictions mean it is the first time the Central Bank has published two forecasts for the Irish economy, with Cassidy saying Brexit makes the current situation “extraordinary and unprecedented”.
The 84-page report says that a no-deal Brexit would represent “significant disruption and the negative shock” to the Irish economy but also points out that no-deal job losses would be much worse outside of Dublin.
Cassidy says that agriculture employs one in 14 people across the economy as a whole compared to one in 33 people in Dublin. In some areas, such as in Cavan/Monaghan, that figure is as high as one in five.
“Rural areas in particular are most affected, tourism of course is spread across many rural areas. In terms of agricultural and food, several different statistics are important, the first is employment in agriculture and food, which is highest in the border regions and then in midlands and in midwest.”
On Dublin, he adds that several factors could help shield the city from the worst effects of Brexit job losses:
You’re certainly not ruling out any job losses or fewer jobs being conconcentated, we do have SMEs, and tourism may be affected in Dublin, but it is certainly less exposed
“You will also see some positive impact, but I would not overstate this, from new financial sector firms relocating to Dublin in the coming years. So the impact is expected to be lessened.”
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