With the price of potatoes having increased 20 per cent in the last year, something of a fish and chip war has broken out on highstreets as cost-conscious consumers seek the best value take-away. Food price inflation is at an eye-watering 45-year high which is concerning for households everywhere. It should, including the price of potatoes, start to ease. But more concerningly perhaps, the price of a different kind of chips – the computer variety – is likely to start going rapidly in the other direction.
Despite the latest financial sector turmoil, major central banks emerged steadfast in their pursuit of curbing inflation, with both the Bank of England and the Federal Reserve raising interest rates last week (ECB hiked theirs the week before). For now, the BoE has kept its options for future rate decisions open, pending more compelling evidence of the impact of rising borrowing costs on the economy. Meanwhile the Windsor Framework Brexit deal was voted through at Westminster and will now be adopted.
The distressed takeover of Credit Suisse over the weekend will revive nervousness in financial markets and likely lead central banks to pause their rate hikes, despite a stream of otherwise relatively solid economic data. Markets have given a strong signal that events over the past week mean less rate hikes, as financial stability concerns feature more prominently in decisions on rates.
This was a Budget aimed on getting growth going. Two areas were in focus. The first, investment, is a long-standing UK problem. Today’s announcement to allow companies to offset all capital spending against their tax bill is the latest effort to spark it into life. The second, bolstering the size of the workforce, is a relatively new problem to have emerged in recent years. Here there are changes to childcare provision and pensions. But at least both measures are being launched amidst a better growth environment after an upgrade to the outlook from the OBR.
In today’s Budget speech, the Chancellor ate up a lot of time announcing give-aways that are relatively small beer – in some cases, literally. We heard about funding being made available to fix potholes in England; relatively small amounts of money for leisure centres, veterans and Ukrainians; a freeze on duty for draught beer; and even investment in Tipton town centre. Jeremy Hunt spoke for over an hour, but the significant announcements in the speech could have been condensed into much less time.
Chancellor Jeremy Hunt has vowed to use the Budget on March 15th to set Britain on the “hard road” to becoming one of Europe’s richest countries. The focus is likely to be on tax breaks to encourage investment, measures to get people back to work, and to ease the cost-of-living crisis. But adherence to fiscal discipline means big tax cuts will have to wait.
Today sees the release of February data from the Ulster Bank Northern Ireland PMI®. The latest report – produced for Ulster Bank by S&P Global – signalled a return to growth in February, with both output and new orders increasing amid signs of demand improving. As such, business confidence strengthened and employment growth quickened. Meanwhile, price and supply pressures continued to ease.
The latest PMI survey could be summed up in one word – improvement. All ten indicators of local business conditions improved in February relative to the previous month. Private sector firms reported their first rise in output and new orders in 10 months. A notable improvement in the economic conditions within Northern Ireland’s export markets helped lift export orders in February following four years of continuous decline.
The recovery in international demand aided a return to growth in output and orders for manufacturers. Meanwhile, retail’s recent resurgence continued. The completed rollout of the £600 energy grant, coupled with cross-border shoppers from the Republic of Ireland, continues to provide a boost for the retail sector. Conversely, construction and services posted a further fall in output last month.
Firms continue to recruit with all four sectors increasing their staffing levels in February. Overall, employment rose at its fastest pace in 15 months with Northern Ireland outperforming the other 11 regions in the UK. Inflationary pressures continued to ease with both input cost and output price inflation falling to 25-month lows.
Finally, it was encouraging to see a surge in optimism last month across all four surveyed sectors. Expectations for output in 12 months’ time hit a 12-month high which represents the highest level of confidence since Russia’s invasion of Ukraine. This latest improvement occurred ahead of the unveiling of The Windsor Framework, so we may see further rises in sentiment in the coming months if it is accepted more universally than the NI Protocol was. Time will tell.
The main findings of the February survey were as follows:
The headline seasonally adjusted Business Activity Index posted 52.2 in February, moving back above the 50.0 no-change mark for the first time in ten months following a reading of 45.3 in January. Output increased modestly amid an increase in new orders and signs of demand improving. The manufacturing and retail sectors posted rises in activity, while services and construction remained in decline. New orders, meanwhile, increased for the first time in ten months. New export orders also returned to growth, a marked turnaround following a sharp decline in January.
In line with the renewed increase in new orders, companies cited a marginal accumulation in backlogs of work, the first since April 2022. Higher new orders also boosted business confidence, which reached a one-year high. With workloads and confidence improving, companies expanded their staffing levels at a solid pace, with the rate of job creation quickening to the highest in 15 months.
Input prices continued to rise sharply on the back of higher costs for energy, transportation and wages, but the rate of inflation was at a 25-month low. The same was true of output price inflation. Meanwhile, suppliers’ delivery times lengthened to the least extent in the two-year series history.
With central banks around the world continuing monetary tightening to tackle persistent inflation, expectations for the Bank of England to follow suit are simmering. But our economic reality is more complicated than that. Inflationary pressures have been coming down recently and the labour market is slowly loosening. However, wage growth pressures are firm and activity data is indicating a recovery. It’s wait and watch for now. Similarly, the jury is out on whether the DUP will embrace The Windsor Framework and return to Stormont.
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 Mark Magill, Senior Economist at Ulster University’s Economic Policy Centre
Over recent weeks a few anniversaries have passed by with little fanfare. On the 31st January Brexit turned 3. Meanwhile two years have elapsed since the UK left the Single Market. Even the staunchest supporter of Brexit would be hard pressed to point to the positives of leaving the EU thus far.
A poll conducted by Ipsos finds that 45% of the UK public think Brexit is going worse than expected. Another poll by Unherd Britain found that The Boston & Skegness constituency was the only constituency not to regret leaving the EU.
Disquiet with the Northern Ireland protocol continues to rumble on. That’s despite the UK Supreme Court ruling that the NI Protocol is lawful. Lawful but awful is how many in Unionist quarters see it. Legal objections may have disappeared, but political objections remain. But will the new Protocol Deal, due today, soothe these concerns?
NOTE: This podcast was recorded on the morning of 27th February 2023
Northern Ireland sometimes gets characterised as a naval-gazing backwater, where overly conservative views and inward-looking discussions dominate. But whilst we have to acknowledge that there is some truth in this, I don’t think we always get enough credit for the many things from here that are out of this world. Recently, NI’s creative talent was on display at both the Superbowl and the BAFTAs, and is set to be showcased in Hollywood soon as well. Many companies from here are high achievers on a global scale too, and on the sporting front, the Irish Rugby team is currently world number one. It’s also encouraging that NI PLC is looking to the stars as well, with the UK Space Conference coming to Belfast later this year.
