Chief Economist’s Weekly Briefing – Downhill

Last week saw a plethora of key economic releases, what’s the gist of it? Still a mixed picture. Chinks of light in some areas, but telltale signs of mounting challenges in others. Retail spending was down despite the seasonal boost one would expect from end-of-year holidays, higher rates are crimping demand for credit and dragging down the housing market. Granted, consumer prices are in retreat but too slow for now to actually make a difference on living standards.

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The Great Rewind

Today saw arguably the biggest fiscal event since George Osborne became Chancellor. Then, we saw austerity 1.0 when the fiscal adjustment was split roughly 80% spending cuts and 20% tax rises. This time around, the current Chancellor, Jeremy Hunt, has gone for more of a 55:45 split (£30bn of spending cuts and £25bn of tax increases). Back then, the Bank of England’s actions in slashing interest rates, to what was then a record low, effectively softened the pain of austerity, therefore making it easier for the Chancellor to push forward with big spending cuts. This time around, the Bank of England is doing the opposite. This means that households are being hit from all angles in the form of interest rate rises, tax increases and spending cuts, whilst inflation is rampant. The Chancellor’s and Governor’s hands are effectively tied. Jeremy Hunt is walking a tightrope of shoring up the public finances in a way that limits the depth and length of the recession. For instance, the tax rises have been aimed at areas that will least impact economic growth, and spending restraint has been targeted outside of growth generators like capital investment. Moreover, the timing of this coincides with the next General Election, with spending increases (on health an education) and modest tax rises before, and spending cuts and significant tax rises after. Despite receiving a £650m Barnett consequential for the next number of years, Stormont still faces a fiscal black hole of probably the same amount for the current financial year.

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Sharpest decline in new business since January 2021

Today sees the release of October data from the Ulster Bank Northern Ireland PMI®. The latest report – produced for Ulster Bank by S&P Global – pointed to further reductions in activity and new orders amid ongoing cost pressures, while business confidence sank further. That said, companies continued to expand their staffing levels as part of efforts to rebuild workforce numbers following the pandemic.

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Chief Economist’s Weekly Briefing – Flying blind

This week’s interest rate decision from the Bank of England will be the first since the September “mini-budget” announcement unleashed a period of political and market turmoil. Markets and economists are counting on a 75 bps hike—the largest since 1989, and a quantum the ECB chose to adjust its benchmark rate just last week. But the real pain for the MPC is forecasting the economic and inflation outlook amid the current uncertainty around the new PM’s pending fiscal strategy.

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Business activity declines for fourth month running

Today sees the release of August data from the Ulster Bank Northern Ireland PMI®. The latest report – produced for Ulster Bank by S&P Global – indicated that the Northern Ireland private sector remained in contraction as demand continued to be impacted by intense price pressures. That said, there were further signs of inflation softening. Meanwhile, firms remained pessimistic about the year-ahead outlook and the rate of job creation softened to an 18-month low.

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Should we actually want a recession?

It used to be that nobody wanted to mention the word recession and doing so was seen as a self-fulfilling prophecy. But going through the deepest recession on record from a Northern Ireland perspective during the pandemic has perhaps desensitised us. At the minute, recessionary chatter is actually the norm. Around the world, talk of the roaring 20s has been confined to the dustbin. Like Covid, talk of the R-word is spreading fast.

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No Netflix and chill, and hold the popcorn and Pringles…

In practically every economy, bar perhaps the likes of China, consumer spending is the dominant factor in driving economic growth. In recent years, the pandemic and lockdown restrictions turned consumer spending habits on their head. When it wasn’t possible to spend money on certain things such as holidays and hospitality, we doubled down on our online spending on garden furniture, home entertainment, fitness products and all manner of other things. Indeed, we saw a dramatic change in spending habits in a matter of weeks that under normal circumstances would have happened over many years.

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Episode 18 | Under the Tractor Bonnet with Cormac McKervey – April 2022

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%.

The Ulster Economix Podcast is also available on Apple Podcasts, Google Podcasts and Spotify. Be sure to Subscribe on your favourite Podcast platform to be the first to hear next month’s episode.

Chief Economist’s Weekly Briefing – Keep the good news coming

The next step of lockdown easing in England will proceed as planned – non-essential retail, outdoor pubs and restaurants and hairdressers (a massive relief!) will re-open next week. While the data says that household savings pots are ready to lend a big helping hand!  And with it the route out of the UK being a G7 economic laggard. As for those of us in Northern Ireland, there is no end of the dodgy haircut, or indicative dates for reopening, in sight.

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Rock bottom: official stats finally reveal impact on NI economy

Official statistics have finally revealed the scale of the much talked about economic impact on two key parts of the Northern Ireland economy. Following news earlier in the week that Northern Ireland posted its first quarterly decline in employee jobs in four-and-a-half years, figures today show a staggering slump in output. Both the Index of Services and Index of Production posted record rates of decline. Like a game of snakes and ladders, the COVID-19 pandemic has acted as a big snake taking industrial and services output back to square one or new series lows.

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