Business conditions in Northern Ireland took a “turn for the worse” in July as demand weakened in the face of inflation and higher borrowing costs, according to Ulster Bank.
The lender’s latest business activity index posted a reading of 48.2 in July, falling below the 50 mark that signals a decline in activity for the first time in six months following a reading of 52.5 in June.
All four monitored sectors posted reductions in new business. The sharpest fall was in construction, with the softest in manufacturing. Only services activity managed to hold up in July, albeit flatlining.
The decline in activity signalled by the index was “modest, and linked by firms to demand weakness and the impact of inflation”, the report said.
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The fall in output in Northern Ireland compared with a marginal increase at the UK level.
“Market uncertainty and price pressures resulted in a second consecutive monthly decline in new orders, with the rate of contraction accelerating from that seen in June,” Ulster Bank said. New export orders also fell at a sharper pace.
The report indicated that companies continued to increase their staffing levels, although the rate of job creation eased to a six-month low. Respondents reported the filling of vacancies and efforts to expand capacity. “Higher workforce numbers helped firms to be able to clear outstanding business more quickly than new orders were received, thereby leading to a sharp and accelerated reduction in backlogs of work,” it said.
Despite the ongoing price pressures on households, inflationary pressures continued to moderate in July, with rates of increase in input costs and output prices easing to the slowest in 38 and 34 months respectively.
Ulster Bank’s chief economist Richard Ramsey said: “Just like the summer weather, business conditions took a turn for the worse in July.”
The near-term outlook is for a further softening in demand with new orders declining for the second month running. All four sectors posted a fall in orders with the pace of decline the most marked within the construction and retail sectors. The fall-off in new demand was most notable within export markets,” he said. “While price pressures have hit demand in recent months, it is encouraging to note that inflationary pressures continue to moderate.”
He noted that while business conditions may have taken a turn for the worse in July, sentiment among local firms for the year ahead has actually picked up. “The interest rate outlook has improved slightly but the dark cloud of no Stormont executive looks set to remain anchored over the economy for the foreseeable future. Whether the new rise in optimism is well founded or misplaced – time will tell.”
