Activity in Northern Ireland’s private sector contracted at the fastest rate in nearly two years last month but easing inflationary pressures are offering some cheer, according to the latest PMI report from Ulster Bank.
It found all four main sectors – retail, services, manufacturing and construction – reported declines in new orders and output, with the contraction in the latter measure the sharpest in a decade, outside of the Covid-19 lockdowns.
The headline PMI measure dropped to 41.6 in December from 46 in November, the steepest fall since February 2021 and pointing to a faster reduction in output.
Businesses responding to the survey said the cost of living crisis was one of the main reasons behind the drop in activity. Inflation has been rising sharply since the Russian invasion of UK, putting a strain on household finances and promoting a spike in interest rates.
While inflation remains an issue and prices are still climbing, there were signs of easing last month with both input costs and output prices rising at the slowest rate since early 2021, the report said. Tellingly, the cost of living crisis and political uncertainty at Stormont have pared the outlook for the year ahead, although sentiment has climbed to an eight-month high.
Meanwhile, the jobs market has shown its first sign of easing in the latest report. It remained unchanged in December, ending a 21-month run of job creation. However, firms continued to report difficulties in recruiting, as well as voluntary redundancies.
Richard Ramsey, Chief Economist at Ulster Bank, said the business environment has deteriorated over the last year.
“Last January, businesses were optimistic for the year ahead with the expectation that growth would continue,” he said. “This proved not to be the case. Largely as a result of the Russian invasion of Ukraine, which added fuel to the cost-of-living crisis, growth petered out and confidence ebbed away.”
He said the worst may be over in relation to the inflationary environment.
“This time last year, firms were braced for a challenging year, but it turned out much worse than anticipated,” he said. “December’s report suggests that negative sentiment is receding and that we may have passed peak pessimism.
“This year, expectations for the 12-months ahead are low but we could see the converse of last year with expectations being exceeded this time around."
