It would be hard to argue that the economy is currently the number one priority of the Northern Ireland Executive or for that matter the UK government or many administrations around the world. That’s because governments are having to contend with a myriad of other problems and challenges from geopolitics and disruption related to elections, to aging populations and crises in health and housing. Geopolitics in particular continues to dominate with tensions in the Middle East and the conflict in Ukraine, which is currently getting the same media attention but isn’t going away.
The last mile in the inflation battle was always going to be hard. In the UK, the most recent data revealed a continued, albeit slow, decline in inflation. Meanwhile the latest three months of US price pressures surpassed expectations. In response to that, market pricing around rate cuts have been pushed back. However, other indicators point to disinflation: the labour market is loosening, supply chain disruptions and producer price pressures are easing.
The UK economy looks to be bouncing back from the (very) shallow recession last year. But the news is mixed elsewhere. While optimism around the UK’s housing market continues to build, rents continue to rise. The ECB signalled that rate cuts are coming while sticky US inflation slashed expectations on when the Fed will do similar. Meanwhile, geopolitical risks are mounting. But so far, the impact on commodity prices has been muted.
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Today sees the release of March data from the Ulster Bank Northern Ireland PMI®. The latest report pointed to strong and accelerated increases in output and new orders, with firms at their most optimistic regarding the future for almost six years. The rate of job creation also picked up. Meanwhile, sharper increases in input costs and selling prices, plus supplier delivery delays were recorded.
Northern Ireland’s private sector moved up a gear in March, with growth in output, new orders and employment all accelerating. Indeed, it was the first time in 25 months that all four sectors recorded an increase in business activity. Similarly, all four sectors posted a pick-up in new orders for the first time in 33 months. Encouragingly, as far as new orders and employment are concerned, Northern Ireland was the top performer amongst the 12 UK regions. On a less positive note, inflationary pressures and supply chain disruption intensified in March. Higher wages and increased shipping charges were cited as factors behind rising input costs, which reached a 10-month high. The acceleration in input costs was most apparent within construction and retail, with the latter passing these on to its customers by raising prices at their fastest rate in a year. On the other hand, services was the only sector to see input cost inflation ease. The ongoing disruption in the Red Sea has contributed to rising costs and has lengthened supplier delivery times for the second month running.
But these challenges haven’t impacted on confidence in Northern Ireland’s private sector. This is because the scale of these challenges is modest compared to what the private sector has experienced in recent years. Indeed, NI firms are their most optimistic about future output in nearly six years. All sectors still expect output to be higher in a year’s time, with manufacturing its most optimistic since the question was first asked seven years ago.
The main findings of the March survey were as follows:
The headline seasonally adjusted Business Activity Index posted 56.6 in March, up sharply from 53.6 in February and pointing to a marked monthly expansion of business activity. Moreover, the rate of growth was the fastest since February 2022. The rise in Northern Ireland was much faster than the UK average. All four monitored sectors posted increases in activity, with the sharpest expansions in the manufacturing and services categories.
Output growth reflected success in securing new orders amid an improving demand environment. New business increased for the third month running in March, and to the greatest extent in just over two years. Some panellists reported that previously delayed projects had commenced. The rise in new orders in Northern Ireland was the sharpest of the 12 monitored UK regions and nations. Business confidence rose to a near six-year high and was the second-strongest since the series began in March 2017.
Meanwhile, firms continued to expand staffing levels, with the rate of job creation the sharpest in seven months. Accelerated increases in both input costs and output prices were recorded in March, often linked to higher wage pressures. Meanwhile, Red Sea disruption caused a further lengthening of supplier lead times.
Slight fall in Ulster Fry Index but still second highest on record
Richard Ramsey, Chief Economist at Ulster Bank has presented his annual Ulster Bank Ulster Fry Index at an event hosted by Ulster Bank today, ahead of its principal sponsorship of this year’s Balmoral Show which returns to Balmoral Park in around 4 weeks’ time. The Ulster Fry Index indicates that the average price of all ingredients making up the traditional cooked breakfast plate decreased slightly in the 12 months to the end of February, following last year’s record rise.
Tea saw the biggest price increase in the index with a rise of 6% throughout the previous 12 months, however this was slightly offset for brew lovers with a 7.1% fall in milk prices. Rises were also recorded in pork sausages (2.5%) eggs (3.2%) and sliced loaf (1.4%)
Other items which have come down slightly in price since last year’s Index was released include bacon (-2.8%) butter (-7.6%) and coffee (-1%).
Overall, the Ulster Fry Index sits at just 0.9% lower than the 2023 figure which saw the highest increase recorded since Ulster Bank began tracking the index in 2007. The previous highest rise came in 2009, just after another recession and cost of living crisis.
The price change in the various breakfast items in the Ulster Bank Ulster Fry Index in the past year are contained within the accompanying infographic.
Richard Ramsey says that while food inflation has eased slightly, it is still causing a real concern for households.
“We know that food makes up a significant proportion of household spending and is also one of our most important economic drivers in terms of the local food and drink industry. So, understanding how the price of these popular food items change offers a useful insight into the state of typical household finances and also the overall health of the agri-food industry.
“What the Ulster Fry Index is telling us is that while the price of everyday household essentials such as butter and milk have fallen, they are still a long way off their previous positions, and this is continuing to put a squeeze on consumer spending powers.
“While it may appear to be good news initially, the reality is that many of these price decreases are too small and insignificant to fully register at the checkout and it’s clear that many households are still struggling to contend with ongoing cost pressures on what would be considered as basic, everyday household items.
Central banks are gearing up for the “final mile” in combating inflation with further falls likely over the coming months, but rising oil prices fuelled by geopolitical tensions are complicating policymakers’ efforts. In the UK, both firms and households expect inflation to ease, though households are more optimistic in this regard than firms. This week we’ll see whether the Eurozone’s central bank gives any hints about upcoming interest rate cuts.
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The podcast that keeps you up to date with what is happening economy-wise in Northern Ireland. Telling you what you need to know but not necessarily what you want to hear. It is better to be prepared for the economic environment we are operating in and not the world we would like to be in.
Featuring Noyona Chundur, Chief Executive of the Consumer Council for Northern Ireland
Ongoing disinflationary pressures are gaining momentum, thereby clearing the path for the beginning of the rate cut cycle. However, the timing of such cuts appears to be slated for summer, requiring further patience. The focus now shifts to the pace of the monetary easing and stickiness of services inflation will be key.
There were no shocks in the GDP and labour market news that landed last week. The data was consistent with the emerging picture of a subdued but steady recovery. The economy seems to be growing again, supported by rising real wages. Further reassuring and unsurprising economic news would be very welcome, with fresh inflation figures and another Bank Rate decision due over the next few days.
We’re into the second month of having a Northern Ireland Executive back up and running. And one of the key areas of focus is getting blockages that have built up over the past two years unclogged. A key part of this will be getting a budget, which is due in April, agreed, passed and implemented. Unfortunately, it will only be for one year, as the dream of multi-year budgets, which is ultimately essential for NI to be put on a more sustainable fiscal path, remains just that.
