BUSINESSES in Northern Ireland have reported a fall in activity for the first time in 14 months.
In an early warning sign that steep inflation could be pushing the north’s economy into recessionary territory, a new survey from Ulster Bank showed conditions within the private sector deteriorated at a much faster rate last month.
The lender’s monthly purchasing managers index (PMI), which reflects the experiences of 200 private sector firms across four sectors, is considered a reliable early indicator of how the local economy is performing. It showed retail businesses in particular endured a torrid May, as the cost-of-living crisis took its toll.
Output within the north’s construction sector fell again, with high material costs the likely factor.
The decline was enough to outweigh the continued growth within the north’s manufacturing and services sectors, pulling the private sector as a whole into decline.
Ulster Bank said falling new orders, increases in the cost of living and market uncertainty were the main factors.
May’s PMI set a new record for the output price inflation, i.e. the costs being passed onto customers.
The report comes after Danske Bank downgraded its forecast for the Northern Ireland economy next year. The lender expects the economy to grow by just one per cent in 2023.
The OECD has offered an even more pessimistic outlook for the UK next year. It anticipates no growth in the UK economy over the course of 2023, putting it firmly bottom of the G7 growth table. The same report forecast that the Republic’s economy will grow by 2.7 per cent in 2023.
Ulster Bank’s chief economist Richard Ramsey said economic forecasts at a global and UK level continue to be downgraded on an almost monthly basis.
“Inflationary pressures and heightened uncertainty are hitting demand and delaying investment.,” he said.
“Input cost inflation in May fell just shy of October’s record rate but local firms increased their prices at the fastest pace in the survey’s history.
“The cost-of-living crisis is making its presence felt, particularly on retail, with both sales and new orders slumping in May,” he added.
“Construction remains mired in an order book recession with last month’s steep decline marking the eleventh successive month of contraction.”
With businesses reporting new orders falling at the fastest pace since February last year, the economist said the overall outlook is things will get worse.
“Despite the advantages afforded to local firms through the protocol, Northern Ireland firms remain the least optimistic of any UK region regarding sales/activity in 12 months’ time,” said Mr Ramsey.
“Local firms expect sales and activity to fall in a year’s time with this negativity driven by retail. Manufacturing is the only sector projecting meaningful growth in 12 months’ time.”
One area of the economy still performing well is the labour market, with businesses continuing to recruit for the fifteenth month running during May.
But Mr Ramsey said skills shortages remain a problem for firms in terms of work capacity and wage pressure.
“It remains to be seen how a slowdown in the economy will improve this, providing one potentially silver lining to the downturn cloud,” he said.
“Overall, with economic conditions set to deteriorate, the call for the chancellor and Stormont to provide additional support for business is set to intensify.”