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Irish exports to UK rebound despite sterling weakness

By Graham Fahy

DUBLIN, Feb 15 (Reuters) - Irish firms increased the value of goods exported to the United Kingdom last year by 8 percent, reversing a 4 percent fall in 2016 when sterling weakness made Irish goods more expensive for British consumers.

The value of exports to the UK rose by 1.1 billion euros to 14.5 billion in 2017, representing 11.8 percent of the total value of goods exported last year. Only the United States, at 27.2 percent, is a larger single-country trading partner, data from the central statistics office showed on Thursday.

However analysts said that Irish businesses had absorbed the costs related to the weakness in sterling in order to maintain market share as they await clarity on Britain's future trading relationship with the European Union once it has left the bloc.

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The British currency has fallen around 14 percent against the euro since the EU membership referendum in June 2016.

"Many Irish exporters are feeling the pain of sterling's depreciation even though export volumes are growing," said Gerard Brady, head of fiscal policy at Irish business lobby IBEC.

"Companies are trying to maintain market share until the political situation becomes clearer by both taking a hit on their margins and looking to pass on costs to the UK consumer where possible."

Ireland (Other OTC: IRLD - news) 's land border with the British province of Northern Ireland and long established trading links with its nearest neighbour means Irish firms have most to lose if Brexit leads to a costly rise in tariffs, paperwork and transit times.

When foreign-owned firms are excluded, Irish exporters' reliance on the UK leaps above 40 percent, with employment-heavy sectors such as agriculture particularly vulnerable.

A government-commissioned study found this week that Irish exports would be 3.3 percent lower by 2030 than they otherwise would have been if future UK/EU trade operates under terms similar to those of the European Economic Area (EEA)

If trade falls under World Trade Organisation rules, exports would be 7.7 percent below the non-Brexit baseline level, the report found.

The fall in sterling also boosted Irish imports from the UK by 10 percent to 17.3 billion euros last year, helping to dampen inflationary pressures in the European Union's fastest growing economy.

Separate data on Thursday showed that annual inflation slipped to 0.2 percent in January with a 1.7 percent year-on-year fall in goods inflation offset by a 1.6 percent rise in services.

The total value of Irish exports rose by 2 percent to 122.1 billion euros last year, the highest annual total on record. (Reporting by Graham Fahy; Editing by Padraic Halpin and Gareth Jones)