11 Sep 2019
‘Northern Ireland only’ chatter intensifies
While the intensity of the process has eased off again now that parliament is no longer in session, there are a number of reports pointing towards a ‘Northern Ireland only’ backstop being touted as a potential solution to the Brexit impasse.
This could see Northern Ireland in a customs and regulatory union with the EU over the backstop period (rather than the current hybrid GB/NI solution). This was the basis of the original backstop which was rejected by Westminster in December 2017 after the DUP objected to an ‘east-west’ customs and regulatory border. Indeed after a meeting with the PM, DUP party leader Arlene Foster said that Mr Johnson had ruled this out.
As the rumour mill continues to turn, one idea being touted is that Northern Ireland may have some say on the regulatory side of the process. The hopes that this could be a runner have been raised further by reports that around 50 Labour MPs could back an amended version of Theresa May’s deal if and when it returns for a vote in Westminster. In late March, the Withdrawal Agreement was rejected by the Commons by 58 votes, with only 5 Labour MPs voting in favour and so an extra 45 backers (i.e. a ‘swing’ of 90) could make the difference. Lastly, as if to smooth things along, ‘the bridge’ between Scotland and Northern Ireland is also apparently under consideration once again.
Mixed UK labour market data
After Monday’s somewhat upbeat growth data, attention turned to the UK employment prints, released yesterday morning. On the surface, the headline prints looked pretty robust. The unemployment rate came down to 3.8%, whilst market expectations and our own forecast had been for a steady 3.9%. Meanwhile pay growth picked up to 4.0% (3m yoy) on a headline basis and stood at 3.8% stripping out bonuses. Consensus had been for 3.7% for both. When we dig a little deeper, the numbers of vacancies did continued to soften, perhaps suggesting a softening in the underlying UK labour market trend from here on in.
ICG: Duty-free shopping to return to Irish Sea in no-deal
Finance ministries in both London and Dublin yesterday confirmed that duty-free shopping would be reintroduced between Great Britain and Ireland if the UK leaves the EU without a deal on 31 October.
The UK Chancellor, Sajid Javid, yesterday morning announced the return of duty-free shopping with EU countries if the UK leaves the EU without a deal and, in response, the Irish Minister for Finance, Paschal Donohue, confirmed that Ireland would reciprocate the decision and facilitate duty free purchases for passengers. The Irish parliament had previously passed legislation which had planned to deal with the issue as part of a future relationship agreement between the EU and UK, but these announcements will apply in the event that no agreement is reached before a potential Brexit date of October 31st. Any duty-free regime will not apply to cross-border travel on the island of Ireland.
ICG’s shares, as well as those of a number of other Irish-facing companies, have suffered in recent weeks as fears of a no-deal Brexit have intensified. While freight traffic in particular on the Irish Sea would be severely disrupted in such a scenario (at least in the short-term), the reintroduction of duty-free shopping would be an important mitigant for the group. Before the abolishment of duty-free shopping in 1999, ICG generated healthy profits from such sales and, in our view, would be in a strong position to improve on this performance given its flexible fleet and the arrival last year of the custom-built WB Yeats.
Irish Economy: New car sales still in reverse
The latest CSO data on new vehicle licences show a continued decline in the number of new car sales in August. New car sales were -6.2% y/y in August and the y/y decline in the first eight months of the year now stands at -7.1%. In contrast, the number of second-hand cars being licensed in Ireland for the first time increased by 8.5% y/y in the month of August and was +4.7% y/y in the year to August. The steep decline in the value of Sterling following the Brexit vote has prompted a large shift from new car sales to second-hand imported car sales, and we note that Sterling fell to below 93p against the Euro last month (although it has since recovered some ground). However we suspect that consumer caution is also weighing on the sale of “big ticket” items at present, as evidenced by the sharp drop in consumer sentiment in August reported yesterday.
US 13.30 PPI
US 15.00 Wholesale Inventories