We’ve become well used to price hikes with rampant inflation, but last month was marked by tax hikes with the increase in National Insurance Contributions hitting the pockets of many employees as well as employers. The attention now though is very firmly on interest rate hikes with the Federal Reserve having just delivered its first 0.5% rate increase in 22 years with more to come as the Fed seeks to tame inflation which is at 40-year-high.
March GDP data signals that economic activity is losing steam as the cost of living crisis begins to bite. With a bigger squeeze still to come, the spectre of stagflation looms large and unwanted attention is falling on the Bank of England over untamed inflation. Worries are certainly mounting, with China’s strict lockdowns weighing on global trade and April’s inflation figures – the first to include the 54% energy price cap jump – expected to show another sharp rise.
If the politicians can agree to form an Executive following last week’s election, there will be no shortage of major issues for the incoming Ministers to deal with. If a First and Deputy First Minster are appointed, the next step will be the allocation of Ministerial Departments. We are well used to Health being seen as the poisoned chalice but this time around, Covid and the cost-of-living crisis will mean that there are no easy briefs. Budgets across the departments will be under extreme pressure and every Minister will be severely challenged. The Executive is often criticised for being short-termist and putting off much needed reforms for the medium to long term. In this Assembly, the risk is that short-term pressures will completely drown out the focus on progressing other, strategic needs. So, it is more important than ever that an incoming Executive is focused, cohesive, and prepared to take tough decisions. Here are some of the major short and longer-term issues they will have to contend with.
As central banks around the world tightening monetary policy, our own Bank of England warned that the UK economy could enter a recession. Yet inflationary pressure continue to build; the G-7 countries pledged on Sunday phasing out or banning the import of Russian oil (the EU, US and UK made similar announcements before). Meanwhile Northern Ireland’s electorate waits to see when / if Stormont’s Executive can be restored. After all, there are no shortage of difficult issues to get stuck into.
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 substantial inflationary pressures acted to subdue growth of output and new orders, with the rate of job creation also easing at the start of the second quarter.
Weaker than expected Euro area growth, unexpected contraction of the US economy and concerns about the Chinese economy, clouded the outlook last week. In the week ahead, the Bank of England is facing the toughest balancing act between curbing recent record high inflation and not weighing too heavily on GDP growth amid a cost-of-living crisis.
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.
In this episode, Richard Ramsey welcomes Cormac McKervey – Head of Agriculture at Ulster Bank NI to the podcast.
The cost-of-living crisis hasn’t been the only crisis dominating the airwaves lately. Warnings of a global food crisis are coming in thick and fast. Last week the World Bank’s president David Malpass warned the world faces a “human catastrophe” from a food crisis resulting from the Russian – Ukraine conflict. The World Bank warns that the Ukraine War is set to cause the largest commodity shock since the 1970s. This warning comes when global food prices were already at record highs. According to the UN global food prices jumped 34% y/y with wheat and oils rising by almost one-fifth and one-quarter in the month following the Russian invasion of the Ukraine. The World Bank projects we could see another huge rise in food prices of 37%.
Disappointing economic data for the UK economy last week: declining retail sales, weakening PMI surveys and falling consumer confidence. To add to that, new projections from the IMF suggest that the UK would have the slowest growth in the G7 in 2023. Weak economic data underlines the balancing act facing the Bank of England, bringing inflation back to target while preserving the recovery.
The two hallmarks of the economic outlook remain in focus: slower growth and higher inflation. UK inflation hit a 30-year high. But that was surpassed in the US where it hit a 40-year high. While China’s latest lockdown is adding to supply chain stress, driving prices even higher, and contributing to jitters around the global recovery. So too is the war in Ukraine, as the latest forecasts from the World Bank suggest.
Even the proverbial dogs on the street are aware that consumer prices are rising. However, the rate of acceleration in UK CPI is still taking seasoned economists by surprise. The annual pace of CPI inflation jumped from 6.2% in February (a 30-year high) to 7.0% in March (still a 30-year high) which was above the 6.7% projected by City analysts. On a month-on-month basis prices rose by 1.1% relative to February, matching the record month-on-month increase posted last October.
