Business

Northern Ireland private sector returns to growth but 'weaknesses lie beneath'

Manufacturers contributed to a jump in economic activity in Northern Ireland's private sector last month
Manufacturers contributed to a jump in economic activity in Northern Ireland's private sector last month Manufacturers contributed to a jump in economic activity in Northern Ireland's private sector last month

NORTHERN Ireland's private sector bounced back last month after taking a dip following the EU referendum.

The findings of the latest Purchasing Managers' Index (PMI) from Ulster Bank and Markit reflected a pattern seen by similar reports in Britain.

The headline business activity index moved to 50.8 from 48 signalling a marginal rise in private sector output.

New export business grew as firm in the eurozone capitalised on a favourable exchange rate.

However it wasn't all good news with the number of new orders decreasing for the second successive month.

The rate of input cost inflation accelerated to the fastest since November 2011 and firms also raised their output prices at a sharper pace.

Ulster Bank's chief economist in the north Richard Ramsey said the findings were in keeping with other PMI surveys which looked at the UK as a whole.

"According to the PMI surveys, the UK economy has witnessed something of a ‘V-shaped recovery’ over the last three months," he said.

"Business activity dropped in July, following the UK vote to leave the EU in late-June, before rebounding in August. Northern Ireland’s private sector performance has followed a similar pattern, albeit the rebound has been much weaker.

“Local firms reported a return to growth in activity in August but it was still the weakest rate experienced this year, and well below the pre-downturn long-term average.

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"Furthermore, Northern Ireland’s private sector did not experience the recovery in new orders last month that occurred in the rest of the UK. Order books amongst local firms shrank for the second successive month. This is due to subdued domestic demand, as export orders increased; no doubt boosted by the fall in sterling."

August also saw a 19th successive month in which Northern Ireland companies took on extra staff - but the rate of expansion is slowing.

And service providers recorded a fall in employment for the first time in 39 months.

Rates of inflation of both input costs and output prices accelerated during August, largely reflective of the weakness of sterling following the result of the EU referendum.

Mr Ramsey said ongoing growth and a return to growth could not "conceal the notable weaknesses that lie beneath".

"In particular, the two growing concerns are the surge in inflationary pressures and stagnation within the local services sector," he said.

"Last month, service sector firms reported their first fall in staffing levels in 39 months. With orders contracting for the last two months there is no sign that activity will improve anytime soon. It is a similar story for construction firms, which reported their fifth successive month of falling orders in August.

“Overall, the rebound in private sector activity is largely due to the manufacturing and retail sectors Indeed, the former recorded the fastest rate of growth in output and new orders last month of all the sectors.

"Meanwhile the fastest rates of employment growth remain within the retail sector. Clearly the manufacturing and retail sectors (cross-border shopping / tourism) are benefiting from the marked depreciation in sterling that has occurred in recent months. This has enhanced price competitiveness and boosted demand from outside the UK."