The UK economy throws off its winter coat, shaking off a mini-recession with a surprisingly rigorous growth spurt. Services and manufacturing lead the charge, with most regions joining the party. But while the sun shines on growth, inflation remains a pesky houseguest. The Bank of England, ever the cautious host, hints at a rate cut, but only if inflation learns to pipe down.
Today sees the release of April data from the Ulster Bank Northern Ireland PMI®. The latest report indicated that a further sharp rise in new orders fed through to continued growth of business activity in Northern Ireland’s private sector. Business confidence also remained elevated and firms upped the pace of job creation. Meanwhile, input costs increased rapidly, but the pace of selling price inflation softened.
This week’s economic news is like an espresso: a pick-me-up shot of relief for UK consumers welcoming falling prices and surging deposits, but with a bitter aftertaste for businesses facing post-Brexit export challenges and tight liquidity. The Eurozone and China’s economies have perked up, yet a cautious US Fed continues to hold rates firm. Is the economic cup already half full, or are we waiting for the real strong stuff to come?
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 Aoife Hamilton, Consultant at Employers for Childcare
Following the recent restoration of Stormont, the new NI Executive delivered another important milestone last week with the publication of a Budget, amounting to £14.5billion of day-to-day spending and capital spending of £2.1bn. This is no mean feature given the challenges associated with a power-sharing arrangement and the very challenging financial environment in which the new Executive is operating. The Finance Minister also said that agreeing the Budget is the first step to putting the Executive’s finances on a sustainable footing. So in that respect, it is a welcome development. However, the reality is that there isn’t much within the Budget itself to welcome.
As Q2 begins, the UK economy is a tale of two halves. Services flourishing but manufacturing faltering. Public borrowing falling, yet missing targets, while interest rate uncertainty chills consumer spending. Across the channel, the Eurozone recovers some steam. Meanwhile, the US faces an economic puzzle: worse than expected growth and sticky inflation leaves the Fed this week in a bind.
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.
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.
