North’s business activity contracts again in July

Economic clouds are gathering over Northern Ireland, with inflationary pressures prompting further declines in customer demand in July, according to the latest purchasing managers’ index (PMI) for the region, published by Ulster Bank.

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 the steepest since February 2021.

The report, produced for Ulster Bank by S&P Global, signals that falling demand has led to further reductions in output and new orders in the North’s private sector. Rates of inflation remained elevated over the month, despite showing signs of easing, with a further rise in employment the main positive from the latest survey.

“Northern Ireland households may be basking in sunshine but as far as the economy is concerned storm clouds continue to gather. Last month witnessed a further deterioration in local business conditions, with business activity contracting at its fastest pace in 17 months. Outside of the Covid pandemic and lockdown restrictions, July’s rate of decline in business activity was the steepest since November 2012,” said Richard Ramsey, Ulster Bank’s chief economist for Northern Ireland.

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“Declining market demand is attributed to rising prices. And while the rates of input cost and output price inflation are easing, they remain elevated. As a result, new orders fell for the third month running and, when excluding the pandemic period, at the fastest pace in over a decade.”

Firms in the North cited increasing difficulties finding work in the Republic, Mr Ramsey added.

“Perhaps unsurprisingly, given the cost-of-living crisis, retail recorded the steepest declines in sales and orders,” he said.

Retail sales have plunged over the last three months and retailers expect sales to still be at these lower levels a year from now. Firms within the services and construction industries also remain pessimistic about the year ahead. Despite a marked drop in orders in recent months, manufacturing is the only sector forecasting a pick-up in activity.

“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.”