The Northern Ireland economy has been rocked by “severe price pressures” which have prompted a sharp contraction in activity, particularly in the manufacturing sector, according to the latest PMI report from Ulster Bank.
It said companies across the province and in all sectors reported a “significant loss of momentum” in June with demand deteriorating and local firms seeing the steepest declines in output and orders of all 12 UK regions.
The report put the weak performance down to the fastest ever rise in input costs, with companies having to cope with a jump in the price of energy, fuel, shipping and wages and subsequently having to push up their own selling prices.
Richard Ramsey, Chief Economist at Ulster Bank, said the manufacturing sector had been particularly hard hit.
“The cost-of-living crisis had already become increasingly evident in May with a slump in retail demand with this trend continuing in June,” he said. “But the sudden reversal in fortunes of the local manufacturing sector has been particularly stark.
“Outside of periods of lockdown, Northern Ireland manufacturers recorded their biggest month-on-month fall in the output index since the PMI series began almost 20 years ago.”
He said the sector’s fortunes can be put down to the changing mood around the Northern Ireland Protocol, one which has acted as a support up until the recent standoff between the UK and European Union.
“While many manufacturers have benefited from the NI Protocol, the current political impasse between the UK Government and the EU raises concerns over the durability of these benefits and therefore how the trade agreement will evolve,” he said. “This, alongside a realisation that an economic slowdown is gathering pace, helps explain why Northern Ireland manufacturing has gone from the most optimistic sector to the most pessimistic in the space of one month.”
Business sentiment has also been impacted by the inflationary pressures as companies worry that customers will continue to scale back spending plans amid rising costs..
On the upside, the job market remains strong.
Employment continued to rise in June with job creation hitting a six-month high.
“This highlights that skills shortages remain a capacity constraint for local firms,” Mr Ramsey said. “The cost-of-living crisis coupled with competition for staff has fuelled pay pressures and added to the cost-of-doing business crisis.”
Of concern will be the fact the labour market tends to be a lagging indicator of economic health and all eyes will be on the jobs data in the coming months.
