NI Economic outlook: uncertain times like no other

Richard Ramsey, Chief Economist NI at Ulster Bank, expects economic challenges in the months ahead.

The latest Purchasing Managers’ Index (PMI) survey for July highlighted a further deterioration in business conditions, with business activity and new orders both falling at faster rates relative to the previous month.

The contraction in business activity was broad-based across all sectors, but was particularly marked among retailers, with the PMI reading falling below 30. This is perhaps not surprising given the intensification of the cost-of-living crisis. Inflationary pressures remain at elevated levels; however, they have started to ease relative to their recent highs. Nevertheless, their impact on customer demand is affecting optimism in various sectors of the NI economy.

Manufacturing is the only one of the four sectors surveyed expecting increased sales in 12 months’ time. The one positive in the survey continues to concern employment, with NI private sector firms continuing to increase their staffing levels at a robust rate in July. However, given the economic conditions and the Bank of England flagging the threat that the UK economy is going to enter recession, then the key question is how long can this employment growth last?

A crisis like no other

As the headlines continue to remind us, we are experiencing a level of inflation last seen in the late 1970s, and the spectre of industrial action has also returned. Having witnessed as an economist the credit crunch/global financial crisis, the housing crash and the eurozone debt crisis, today is the most concerned and worried I have ever been about the near-term economic outlook and the potential impact on people.

Inflationary pressures remain at elevated levels; however, they have started to ease relative to their recent highs

The broad picture for us to consider includes:

  • The Bank of England’s (BoE’s) Governor said that the UK economy will experience five consecutive quarters of contraction and that inflation will exceed 13%. This means household incomes will experience the biggest fall in real terms since records began.
  • The BoE expects GDP to contract in 2023 and 2024. If this happens, it would mark the first time that the UK has seen back-to-back years of economic decline since the 1960s. I fear that a recession in Northern Ireland is unavoidable, and we could see the NI economy contract by 2% next year, depending on the outcome of an emergency Budget.
  • The cost-of-living crisis will threaten jobs, but even those who stay in employment will be severely hit by inflation. The recession in the UK could be the most damaging in a generation in its impact on people. Expect some to turn off their heating in winter (affecting their health and well-being), while others may leave theirs on and fall into credit card debt.

Hopes for an emergency Budget

We are, therefore, hopeful of an upcoming emergency Budget to soften the impact. People in Northern Ireland will also expect Stormont to deliver an Executive that can deliver localised help. As the crisis progresses, politicians will likely face increased scrutiny if there is no Executive.

With England forecasting a UK recession, a softening in the labour market is on the cards as we head into 2023. However, one silver lining is that the labour market is likely to be more robust in this recession than in previous ones.

For further insight, listen to the latest Ulster Economix monthly podcast.

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