Falling pound boosts business for Northern Ireland companies

Businesses in the north trading across the border have had a bumper August according to the latest Ulster Bank PMI report
Gary McDonald Business Editor

IT'S been a summer of rich pickings for firms in the north which are trading with their neighbours in the Republic, a new business barometer shows.

For despite the uncertainties and complexities to come around Brexit, business activity in Northern Ireland it outstripping that of regions in Britain.

And its all down to its proximity to the eurozone, the closely-monitored Ulster Bank PMI report reveals.

The monthly survey points to faster rises in output and new orders, supporting further job creation.

The weakness of sterling against the euro (some analysts are predicting pound-euro parity by early next year) played an important role in the local economy.

That, said the report (produced for Ulster Bank by IHS Markit), helped firms to secure new export orders but also added to inflationary pressures.

Ulster Bank's chief economist in the north Richard Ramsey said: “Northern Ireland firms reported faster rates of growth in business activity than the UK average for the first time this year during August.

"While there was an eight-month high here in the rate of business growth, UK firms posted the slowest rate of expansion in six months. The fact that London and the South East are not acting as the traditional dynamo of the wider economy is a major factor."

He added: “It would appear that Northern Ireland is benefiting from the robust recovery in the eurozone, which is currently growing at twice the rate of the UK.

"But local firms are taking advantage of having one of the fastest-growing economies in Europe on its doorstep. Throw a weak currency into the mix, and the conditions are ideal for those selling into the Republic and eurozone market."

The report said all sectors saw their rates of business activity rising in August, though services was the stand-out performer, with its output and employment hitting 17-month and 41-month highs respectively.

Although activity in the construction sector grew, it was only marginally so, but manufacturing and retail both rebounded from their recent lows, with sterling’s weakness acting as a tailwind in both sectors for now.

But Ramsey cautions: “A major challenge remains inflation. Indeed, construction saw the fastest rise in input cost inflation in eight months. Firms appear to be passing their rising costs onto their customers with the price of goods and services rising across all sectors.

“Looking ahead, the robust rates of growth in new orders across most sectors bodes well for activity in the months ahead.

"But inflationary pressures will act as a break on consumer spending in the domestic market. And longer-term economic prospects are clouded political uncertainty on a number of levels.”

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