Cure required for ‘fiscal hangxiety’? Hair of the dog or cold turkey?

It could be said that the global economy at present is characterised by ‘financial hangxiety’. Anyone who has been to a late spring / early summer barbecue and suffered from the after-effects of beer, wine or aperol spritz the next morning, and the dread of the working week that lies ahead, will probably know what hangxiety is. With the financial version, consumers are experiencing the effects of rising food and utility bills and resulting nervousness about the state of their household finances going forward. This is particularly true for those mortgage holders due to see a surge in their mortgage payments in the coming months and years.

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Chief Economist’s Weekly Briefing – Meeting Expectations?

We are close to a turning point in monetary policy, but the full weight of rate rises to date have yet to be felt. And it might get worse for households in the near future. Firms have started cutting bonuses. And mortgage payments are going to shoot up. Any good news? The Bank of England is expecting the headline rate of inflation to show the first large drop this week, meaning prices would still be on the up, just not as rapidly as they have over the past year. Locally, another election is over. Back to porridge for the politicians. But back to Stormont?

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Chief Economist’s Weekly Briefing – More is less?

Whether the Bank of England’s monetary tightening cycle has ended is yet unclear. Sure, the Bank has more upbeat views about the UK’s economic future. But there are still some unknowns. The full impact of high interest rates is yet to be felt. Firms haven’t paused hiring but are making cautious changes in types of staff hired. And while there is still some momentum left in growth, how long would it last?

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Employment rises markedly as workloads continue to expand

Today sees the release of April data from the Ulster Bank Northern Ireland PMI®. The latest report – produced for Ulster Bank by S&P Global – indicated that growth was sustained in the Northern Ireland private sector, with activity up for the third month running. Employment continued to rise markedly as a result. Meanwhile, rates of both input cost and output price inflation softened again and suppliers’ delivery times shortened.

Northern Ireland’s private sector started the second quarter in the same way that it ended the first with businesses in expansion mode. Output, orders and employment all increased in April albeit the pace of growth eased relative to March. This was particularly marked with new orders as falling demand amongst manufacturers and construction firms largely offset growth within retail and services. Manufacturing was the only sector to post a decline in output in April with construction finally recording a rise in activity for the first time in 14 months. 

The trend of easing inflationary pressures continued last month with input costs rising at the weakest pace in almost two-and-a-half years. Services firms have recorded the steepest rise in cost pressures in each of the last five months. Despite robust rates of wage inflation, all sectors continued to increase their staffing levels in April. Retailers led the way in the recruitment drive, but construction firms posted a record rise in staffing levels. This would appear to suggest the softer demand in the sector is enabling longstanding vacancies to finally be filled.

Supply chain disruption has blighted the economy since the pandemic first hit. But April’s survey revealed that firms saw supplier delivery times shorten for the first time since the question was introduced back in March 2021.

Overall, the steady improvement in the private sector is in stark contrast with the mounting difficulties within the public sector. Budget cuts and a scaling back of public services will also have implications for parts of the private sector too. Meanwhile the headwinds of higher interest rates and increased taxation will increasingly be felt by all parts of the economy in the year ahead.

The main findings of the April survey were as follows:

  • The headline seasonally adjusted Business Activity Index posted 53.1 in April, down from 54.9 in March but still signalling a solid monthly increase in business activity at companies in Northern Ireland.
  • Output has now risen in three successive months. Activity increased in the services, construction and retail sectors, but dipped in manufacturing.
  • Output growth was often linked to higher new orders, which also increased for the third month running. That said, the rate of expansion eased and was only marginal.
  • Rising new orders also encouraged firms to expand employment again, with some companies increasing staffing levels to try and work through outstanding business. 
  • Staffing levels continued to rise sharply. While higher wages and energy prices continued to push up input costs in April, the rate of inflation softened for the seventh consecutive month and was the weakest in close to two-and-a-half years. Similarly, the pace of increase in selling prices was the least pronounced since December 2020.
  • For the first time since the question on suppliers’ delivery times was added to the survey in March 2021, vendor performance improved in April. Companies remained optimistic that output will continue to rise over the coming year, with confidence supported by improvements in new orders.

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Chief Economist’s Weekly Briefing – The good, the bad and the mixed

Easing of business concerns and continued (although softer) consumer spending growth signal better-than-expected economic performance in the second quarter. But in the medium run, higher debt repayment burden for the government amid elevated rates could limit fiscal space, barring election-related pump priming. That’s bad news for productivity, a long-running painpoint for the UK economy. Globally too, the growth momentum is slowing.

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Chief Economist’s Weekly Briefing – Resilience

The heat is yet to come out of the UK economy. Business activity is rebounding steadily, the labour market is still very tight with sticky wages, and the drop in the pace of inflation remains slow. This presents a strong case for the Bank of England to raise rates again in May. But there are reasons for caution, too, including housing.

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Chief Economist’s Weekly Briefing – Cautiously optimistic

The UK economy seems to have exceeded expectations in the first quarter. Although GDP was flat in February, business and job surveys suggest March saw material improvements. Sure, headwinds do exist—stubborn core inflation, slowing wage growth, and tighter credit conditions globally. But this is the most optimistic the economic outlook has been in recent months. Does that mean we can wave goodbye to recession fears? Not  quite yet. But don’t be surprised if we don’t end up seeing it this year.

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Growth momentum builds at end of first quarter

Today sees the release of March data from the Ulster Bank Northern Ireland PMI®. The latest report – produced for Ulster Bank by S&P Global – pointed to growth gaining momentum in the Northern Ireland private sector. Output, new orders and employment all increased at sharper rates. Meanwhile, rates of inflation in both input costs and output prices continued to ease.

Momentum in the local economy continued to build at the end of the first quarter. February’s report was summed up in the word ‘improvement’ and March was something of a rerun of this, with almost every indicator improving further on the previous month. Business activity accelerated at its fastest pace in a year, with only London recording a sharper rate of growth. New orders posted their steepest rate of expansion in a year as well. 

Construction was the only NI sector not in expansion mode in March. Lack of a Stormont Executive and a paralysis in decision-making is being felt and will continue to be felt in this sector. This is reflected in the new orders indicator which has indicated declines for 21 months running. In the latest report, construction was the only sector not to see new orders growing, in fact recording a marked fall.

One of the few bright spots for construction is employment, with headcounts growing as firms fill vacancies that they perhaps were unable to fill when the labour market was tighter. Indeed, employment was strong across all sectors, growing at the joint fastest pace on record and one that exceeded all other UK regions.

Inflationary pressures continued to ease in March and were at their weakest pace in over two years. But the pace of cost and price rises was still above the pre-pandemic long-term average. Another encouraging sign is that supplier delivery times for retail, manufacturing and construction shortened in March reflecting that global supply chains are returning to some kind of normality.

Whilst we are seeing notable short-term improvements, and firms are relatively optimistic for the year ahead, there are lots of challenges that will impact on future growth. The slowdown in the global economy is one factor, but the outlook for the public finances is also bleak and this is compounded by the ongoing lack of a functioning Stormont Executive. Meanwhile, households will continue to battle with a cost-of-living crisis.”

The main findings of the March survey were as follows:

The headline seasonally adjusted Business Activity Index rose to 54.9 in March from 52.2 in February. The reading indicated a sharper expansion in output in the private sector, and one that was the fastest for a year. In fact, the rise in Northern Ireland was the second-sharpest of the 12 monitored areas of the UK, behind only London. Panellists reported that higher sales amid improvements in customer confidence and demand had been behind the increase in output. Growth was seen in three of the four monitored sectors, the exception being construction. Retail posted the fastest increase.

Total new orders also expanded at the fastest pace for a year in March, while new export orders ticked higher for a second month running. Firms ramped up hiring in March, in response to higher new orders, a solid build-up in backlogs of work and confidence in the outlook. Moreover, the rate of job creation was the joint-fastest in the survey’s history, and the latest increase was the fastest seen across all of the UK areas covered.

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