Interest rate link to jobless targetNI faces economic struggle with tie-in to UK unemployment policy
The Northern Ireland economy needs to make sure unemployment remains at or below the UK average to avoid getting caught out by the Bank of England's new interest rate policy.
It follows yesterday's announcement by the central bank's new governor Mark Carney that rates will remain at the current historically low level of 0.5% until unemployment drops to 7%.
Latest figures from the Department of Enterprise Trade and Investment show Northern Ireland's unemployment rate has fallen to the same as the UK average of 7.8%, but such a par performance might not last.
Esmond Birnie, PwC's chief economist in Belfast said Northern Ireland may struggle to keep up with regions such as the south east of England.
"Forecast growth, relative to the pre-crisis years will remain modest for the foreseeable future, with a distinct regional split," he said. "More than half of all new private sector jobs have come from London and the South East, with growth in those regions alone for 2013 forecast as 1.2% and 1.4% respectively.
"That is well ahead of regions like Northern Ireland and the North East of England that are projected to grow by a mere 0.5% in 2013 – half the forecast UK average."
Such a situation means Mr Carney's trigger point could be reached before the economy here is fully back on its feet.
"UK average unemployment could hit the bank's 7% target while some regions are still struggling to deliver confidence, investment and growth.
"The new governor has delivered a useful message to encourage recovery, but some regions are going to have to run very hard indeed to match even average UK growth, let alone that of London and the South East."
Richard Ramsey, economist at Ulster Bank in Northern Ireland, agreed that a one-size-fits-all policy isn't ideal.
"Of all UK region's, Northern Ireland is the one which arguably requires interest rates to stay lower for longer than the rest of the UK, given its hangover of debt and legacy from the property downturn," says Mr Ramsey.
Still, it may be some time before the UK's unemployment rate falls by much.
The central bank's forecasts for the jobless rate put it above 7 per cent until at least the end of 2016 – a year after financial markets predict a first rate rise from Threadneedle Street.
Mr Carney's announcement triggered instant sell-off in currency markets – sending the pound down almost a cent against the dollar at one stage.
But sterling roared back after the City read the small print of the guidance, which can be cancelled if inflation is forecast to be 2.5 per cent or more in two years' time, inflation expectations rise or there is a threat to financial stability.