With UK Prime Minister Theresa May failing to win a majority in elections last week, the fate of Brexit negotiations have become even more up in the air. It is likely that she will be forced to give concessions the opposition, and thus take a softer stance on the terms of Brexit. Despite the specifics of the negotiation still being uncertain, it has become obvious that the Irish Economy will be hurt by declining trade with the UK and will at the same time benefit from the relocation of multinational corporations from the UK to Ireland.
The UK is one of the top destinations for Irish exports. In 2015, 12% of Irish exports went to the UK, valuing at $12.9 billion. However, Brexit will force terms of trade between the UK and Ireland to be re-examined. While Ireland will definitely try it’s best to keep trade with the UK as open as possible, with declining consumer spending in the UK and the falling price of the pound to the euro, Irish goods are nevertheless becoming more and more expensive to British consumers and importers. The most significant Irish exports to the UK are medical products and agricultural products, (around 40% of Irelands food and drink exports go to the UK), thus these industries are likely to be the hardest hit.
Predications about the future of Irish-UK trade are generally bleak, as exports have already fallen by almost half a billion euros last year and as the Bank of England has forecasted faster increases in consumer prices in the UK. However, without winning the majority of votes in parliament, British Prime Minister Theresa May may have to soften her stance and demands on Brexit, bringing about better terms for the EU and Ireland.
On the other hand, Brexit may very well contribute the greater economic growth in Ireland as companies operating under EU regulations and previously headquartered in London move across the water to Dublin. The IDA as already taken steps to assure corporations that Ireland remains aligned with the EU and that the 12.5% corporate tax rate will remain.
Furthermore, with the EU coming in hard on its control over Euro-clearing firms, businesses located in London may be forced to move inside the EU. Clearing firms act as intermediates between buyers and sellers of financial transactions such as stocks, bonds, and derivatives. They protect customers from defaults because the speed of financial transactions mean that the actual movement of money may take longer to complete. The EU’s demands on Euro-clearing firms is critical to the Brexit discussion because about 75% of Euro-denominated derivatives trading takes place in the UK and the UK hosts many of the large clearing firms including the world’s largest: LCH.
The EU deems these clearing institutions essential to the EU financial system, and would like to have to have direct oversight over them, thus many of them will be forced to move inside the EU. This represents another great opportunity for Ireland to establish its self as an important financial hub in the EU. Overall, Ireland is an attractive location for all businesses since it is the fastest growing economy in the EU, an English speaking nation with great corporate tax regimes and has close relations to both the US and the UK.