Belfast Telegraph

Northern Ireland private sector business on the rise but currency changes hitting costs

By John Mulgrew

Northern Ireland business is continuing to grow in 2017 - buoyed by a cheap pound, a new survey has shown.

The private sector here increased in January, following a surge at the end of last year, according to the latest purchasing managers' index (PMI) from Ulster Bank.

However, currency fluctuations are having a huge hit on input costs, particularly in manufacturing.

Overall, retail, manufacturing and services all saw increases in activity. However, construction output dropped by a small amount. Northern Ireland's Business Activity Index of 54.2 was below the overall UK average of 55.2. Growth here outpaced Scotland, the East Midlands and the north east of England.

According to Richard Ramsey, chief economist with Ulster Bank, the "positives of the weak sterling, which have been prominent for a number of months, continue to be evident".

"But the negatives of the exchange rate are also starting to feature more and more prominently," he said.

"This will be a major feature of the year ahead as inflationary pressures continue to intensify and indeed accelerate. Slower growth and higher inflation look set to be the order of the day."

Employment levels increased by a small amount in January, with overall job creation roughly in line with the UK as a whole.

"Employment, new business, and export orders also eased back, but the latter remains very strong, suggesting the favourable exchange rate continues to be a significant factor in the local economy," Mr Ramsey said.

"While activity eased, inflationary pressures are accelerating - another indication of the impact a weak sterling is having on local businesses through the increased cost of imports. Indeed input cost inflation increased at its fastest rate since May 2011, with higher wage pressures also cited as a significant factor."

He said that was impacting on prices charged to customers and that output cost inflation is now at its highest level since 2008.

"Manufacturers are experiencing the largest rise in their cost-base due to a dependence on imported materials, with a huge surge in January, the most intense inflationary pressure on record. Manufacturers are also raising the prices of their goods at a record rate, but it appears that they are trying to absorb some of the increased costs themselves to maintain competitiveness, which will inevitably impact on profitability.

"Retailers on the other hand appear to be passing on their increased costs entirely to the consumer, and it will be interesting to see to what extent this impacts on consumer spending in the months ahead."

Overall, construction remained flat in January, following a long period of contraction.

"However, anecdotally, it would appear that this improvement is almost entirely driven by Belfast," Mr Ramsey said.

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