Northern Ireland businesses continuing to grapple with rapid cost inflation, survey reveals

Northern Ireland firms have blamed higher raw material prices, increased freight costs, rising wages and Brexit for driving costs up. Picture by Brian Lawless/PA Wire.
Ryan McAleer

BUSINESSES in the north continued to report soaring costs during March, although the economy appeared to have largely stabilised.

The latest Purchasing Managers Index (PMI) from Ulster Bank showed cost inflation again accelerating last month at the sharpest rate since the survey began in 2002.

Higher raw material prices, increased freight costs, rising wages and Brexit-related charges all reportedly contributed to the inflation, which in turn contributed to the sharp acceleration of output prices.

Severe supply chain delays were also reported, linked to ongoing Brexit challenges and the blockage of the Suez Canal.

Compiled by IHS Markit for Ulster Bank, the monthly survey is based on the experiences of 200 private businesses from across the north’s manufacturing, construction, retail and services sectors.

Despite the mounting cost issues, the success of the vaccine roll-out and the gradual move to the easing the Covid-19 restrictions resulted in growing levels of confidence within the private sector, with business sentiment at its highest since February 2020.

Companies also increased employment levels for the first time in 13 months, largely driven by manufacturing and services, with hospitality businesses now gearing up for the reopening of the sector.

It resulted in a much improved picture for the broader private sector during March, with the retail sector in particular bouncing back strongly, albeit coming off very weak levels in February.

And while greatly stabilised, the headline business activity index for Northern Ireland remained below the 50 (no change) mark, the only region of the UK or Ireland to do so.

The PMI continued to identify the Covid-19 restrictions as the main drag on economic activity.

Ulster Bank’s chief economist said the north’s private sector ended the first quarter of 2021 with output still falling, but only just.

“Northern Ireland though was the only region of the UK not to experience output growth in March.

“Whilst the rest of the UK has benefited from some easing of lockdown restrictions, Northern Ireland still has this activity boost ahead of it,” said Mr Ramsey.

The economist said while the picture for new overseas business still looks grim for Northern Ireland firms, the overall export picture is improving.

“Manufacturers will be looking to the months ahead with more confidence given the improving conditions in key export markets,” said Mr Ramsey.

“The Northern Ireland export climate index within the latest PMI improved markedly in March and this should filter through to increased demand over the next quarter.

But he said inflation remains a growing issue for businesses, with significant rises in their input costs forcing them to push up the prices of their own goods and service.

“But whilst there are still significant challenges, the 12-month outlook improved due to increased confidence in the manufacturing and services sectors,” added the economist.

“With construction and retail still relatively pessimistic, though, Northern Ireland overall lags the rest of the UK by a significant margin in terms of sentiment.

“And what confidence there is could be dented by the current political situation, and there is a risk that this could be a head wind for the recovery.”

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