Inflationary pressures in Northern Ireland moderated last month but business activity levels plunged at their fastest rate since February 2021, pointing to a “difficult end” to the year for company, an Ulster Bank report indicates.
But despite the broadly gloomy data, the bank’s latest purchasing mangers’ index (PMI) for Northern Ireland indicates that negative sentiment is receding, suggesting that the private sector may have passed “peak pessimism”.
The headline index, which is based on a survey of about 200 companies, fell sharply last month from 46 in November to 41.6 with any reading below the PMI’s benchmark of 50 indicating a slowdown.
The decline in overall activity levels was the steepest since February 2021, Ulster Bank said. Activity declined in all four sectors covered by the survey — retail, manufacturing, construction and services — amid declining output and new orders.
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The overall decline in output was the steepest in a decade outside of periods of lockdown during the emergency phase of the Covid-19 pandemic, said Ulster Bank.
Of the four main sectors, construction regressed at the fastest pace although builders did take on more employees in December.
Overall, however, employment growth, which was unchanged from November, stagnated in December, ending 21 consecutive months of job growth. But “the picture in Northern Ireland was more positive than across the UK”, said Ulster Bank, where employment growth fell last month.
“While some firms were able to expand workforce numbers, others reported voluntary resignations and ongoing difficulties recruiting,” the report notes.
Meanwhile, suppliers’ delivery times lengthened for the 22nd month in a row, according to the survey, with respondents citing Brexit and postal strikes across the UK last month as the main factors behind the longer wait times for orders.
On a more positive note, inflationary pressures moderated again in December with both input and output costs rising at their slowest pace since early 2021.
Where input costs were up, respondents cited higher energy prices and transportation costs as the driving factors.
Difficult year
In December, companies also reported feeling more positive about the outlook for the immediate future. Sentiment improved to an eight-month high but remained subdued due to the cost of living crisis and worsening economic uncertainty.
“This time last year, firms were braced for a challenging year, but it turned out much worse than anticipated,” said Richard Ramsey, chief economist at Ulster Bank Northern Ireland.
Having started 2022 in expansion mode as the pandemic recovery gathered pace, Mr Ramsey said, last year was coloured by the Russian invasion of Ukraine, which added “fuel to the cost of living crisis”, forcing down growth and confidence.
“December’s report suggests that negative sentiment is receding and that we may have passed peak pessimism,” he said. “This year, expectations for the 12 months ahead are low but we could see the converse of last year with expectations being exceeded this time around.”
