Chief Economist’s Weekly Briefing – Light relief

Does June’s unexpected fall in the rate of inflation herald the start of a retreat? It seems unlikely. The fall in sterling that has helped push inflation higher is still filtering through into consumer prices. And even at the lower rate inflation remains uncomfortably above wage growth. That’s a considerable headwind for the economy.

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NI productivity challenge highlighted by economic data


The Northern Ireland economy continued to expand in Q1 2017, according to today’s data, albeit at a weaker rate than in the previous quarter. Private sector growth (+0.4% q/q, +3.4% y/y) was driven by the services sector (+0.5% q/q, +3.1% y/y) with industrial production (-0.2% q/q, +2.1% y/y) and construction (-1.7% q/q, +7.9% y/y) posting quarterly contractions. The fall in industrial production though conceals strong rates of growth within manufacturing firms (+0.9% q/q & +0.9% y/y).

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Inflation eases but won’t melt away

Using the UK consumer price index (CPI), the annual rise in the price of consumer goods and services eased from 2.9% in May to 2.6% in June. This unexpected easing marked the first fall in the annual inflation rate since October 2016 and perhaps reduces the likelihood that more members of the MPC will vote for an interest rate hike in the near future. That has been how financial markets have interpreted this morning’s figures, with sterling losing around one cent against the euro and the US dollar immediately after the inflation release.

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Growth of construction activity in RoI remains elevated at end of Q2

Irish construction firms posted a further strong rise in business activity during June. This was despite an easing in the pace of growth, which mirrored a slowdown in the rate of expansion in new orders.


Employment continued to increase at a substantial pace, while business sentiment improved to a ten month high. The Ulster Bank Construction Purchasing Managers’ Index® (PMI®) – a seasonally adjusted index designed to track changes in total construction activity – dropped to 58.2 in June from 63.6 in May, posting a sharp monthly rise in activity, albeit the weakest in four months. Total activity has now expanded in each of the past 46 months. Panellists reported improving demand, with the housing and commercial sectors highlighted as areas of growth.

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‘Cost of Living Squeeze 2.0’ warning light flashing

For almost 5 years, during the period late-2009 to mid-2014, UK consumers experienced an intense squeeze on their disposable incomes. Consumer price inflation outpaced wage growth over this period which became known as the “cost of living crisis”. Fast forward three years and once again pay growth is lagging behind inflation. We are now in what could be dubbed the ‘Cost of Living Squeeze 2.0’.  Whilst it is not expected to be as severe or last as long as its predecessor, the second iteration of the cost of living squeeze will hit consumer spending and those sectors sensitive to it. Continue reading