Business confidence slumps in face of escalating inflationary pressures

A new survey shows businesses in the north faced a significant spike in costs during March.

THE war in Ukraine had a clear impact on the north’s economy last month, according to a new report from Ulster Bank.

The latest purchasing managers index (PMI) from the lender recorded a sharp drop in business confidence in the face of a near record spike in costs during March.

While the private sector continued to grow, there were signs of activity starting to slow down due to the high rates of inflation.

“There is no disguising the impact that the Ukraine/Russian conflict has had on business conditions,” said Ulster Bank’s chief economist Richard Ramsey.

“This has manifested itself in three key areas – escalating inflation, a slowdown in incoming business, and a significant dent to business confidence.”

The monthly survey reflects the experiences of 200 private sector firms across the north’s manufacturing, services, retail and construction sectors.

Manufacturing remained Northern Ireland’s strongest performing sector, but its rate of growth eased during March. Activity accelerated for the retail and services sectors, but construction saw a fall in output.

Mr Ramsey said the order books for companies showed the challenges that lie ahead for the business community.

“All sectors saw the pace of new orders growth slow or fall in the case of construction, this was the ninth successive month of order book contraction.”

The report also showed the substantial increases in fuel, energy, materials and wages produced a sharp rise in prices being passed on.

“We have heard so much about the cost of living crisis, but the cost of doing business crisis is also affecting local firms in spades,” said Mr Ramsey.

Wage and energy costs in particular pushed costs to record highs for the services sector, while manufacturers are raising prices at a record rate in response to the cost pressures.

“With these inflationary pressures, combined with supply chain disruption and ongoing skills shortages, private sector firms reported a big fall in confidence regarding the year ahead,” said the economist.

While businesses anticipate output will rise in the next 12 months, their expectations have been scaled back.

“Manufacturing is still the most optimistic sector, followed by services. But construction firms expect no growth over the next year and retailers anticipate a fall in output.

“With consumers’ finances now under so much pressure from, for instance, the doubling in the price of home heating oil in the space of two weeks, retailer sentiment has in effect done a 180 degree turn in the space of a month. It has gone from expecting strong growth to now expecting a marked decline.

“The key drivers of the falling confidence – inflationary pressures and supply chain disruption – are not going away,” added Mr Ramsey.

“Indeed with tax rises coming into effect in April, pressures on businesses and their customers will intensify.”

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