Confirmation that inflationary pressures are leaving the Northern Ireland economy hamstrung have emerged in the latest PMI report from Ulster Bank, which reported the sharpest slowdown in activity in a decade.
It said that apart from the Covid pandemic and accompanying lockdown restrictions, the rate of activity in the private sector fell at the sharpest pace since November 2012 when the economy was suffering from the after effects of the credit crunch.
Companies reported a fall in customer demand, output and new orders, all accompanied by rising prices which has eased slightly but remain elevated.
“Northern Ireland households may be basking in sunshine but as far as the economy is concerned, storm clouds continue to gather,” Richard Ramsey, Chief Economist at Ulster Bank, said.
The drop in demand across all sectors, with services experiencing the smallest declines in output and new orders. Mr Ramsey said retail has been hit hard.
“Perhaps unsurprisingly, given the cost-of-living crisis, retail recorded the steepest declines in sales and orders. Retail sales have plunged over the last three months and retailers expect sales to be broadly unchanged (i.e. at these lower levels) in twelve months' time.”
Meanwhile, firms within the services and construction industries remain pessimistic about the year ahead with both sectors anticipating lower levels of activity within the next twelve months. Despite a marked drop in orders in recent months, manufacturing is the only sector forecasting a pick-up in activity in that timeframe.
There was, however, at least a small chink of light.
"Positives remain in short supply in the latest survey,” Mr Ramsey said. “However, employment continues to be a bright spot with all four sectors increasing their staffing levels in July.
“But with the Bank of England forecasting a UK recession, a softening in the labour market will be expected going into 2023. That said, the labour market is likely to be much more robust this time than in previous recessions."
Overall, the headline seasonally adjusted Business Activity Index dropped to 41.9 in July, down from 42.9 in June to signal a sharp contraction in output in the Northern Ireland private sector, and one that was the steepest since February 2021. Retail posted the fastest decline in activity, followed by construction and then manufacturing. Although marked, the reduction in services was the softest of the four broad sectors covered. Where output decreased, respondents linked this to the impact on demand of sharply rising prices. This also resulted in a third successive fall in new orders, with the latest decline the fastest in a year-and-a-half.
Rates of inflation in both input costs and output prices remained elevated in July, but in each case showed further signs of easing. Where costs increased, panellists reported higher fuel prices feeding through to increased transportation costs, plus wage rises. Employment increased solidly, extending the current sequence of job creation to 17 months. A combination of falling new orders and expanded operating capacity enabled firms to deplete outstanding business at a rapid pace. Companies were again pessimistic regarding the 12-month outlook for activity, but less so than in the previous month.
