Northern Ireland's economy is benefiting from a strong improvement in business conditions, Ulster Bank's latest purchasing managers' index showed yesterday.

Business activity and new business rose to 15-month and 16-month highs, respectively. Private sector output rose in Northern Ireland for the 34th month in a row, led by growth in the services, retail and construction sectors.

Companies cited greater volumes of new business as the primary reason for the sustained growth. The rate of expansion of new orders picked up for a fourth consecutive month after remaining subdued for much of 2005, Ulster Bank said.

"Things are getting better," said Pat McArdle, Ulster Bank's chief economist. "January was the best month since October 2004 and private sector activity is, once again, within shouting distance of the UK average."

However, employment in the private sector dropped in January, as input price inflation boosted companies' costs and compelled them to trim their workforce.

The price of energy, raw materials, wages and fuel all increased during the period, leaving input price inflation in Northern Ireland "well above" the UK average, according to Ulster Bank.

Cost inflation accelerated for the first time in four months, prompting private companies in Northern Ireland to raise output prices.