The north’s private sector continued to record strong growth last month, maintaining the momentum built up since the start of the year, a new business survey suggests.
Output, new orders and employment all increased at sharper rates last month, according to the latest purchasing managers’ index (PMI) from Ulster Bank.
The monthly survey, which tracks the performance of 200 construction, services, manufacturing and retail firms, showed all four sectors in growth mode during May.
Manufacturing was the strongest performer, while construction output increased at the fastest pace in almost four years.
Services also posted another strong month in May.
Retail experienced the weakest growth, as the sector took on additional costs from the uplift in the national living wage from April.
Ulster Bank’s report said higher wages pushed up input costs across the private sector, feeding through to a marked rise in selling prices.
However, the PMI showed a steep rise in new orders during the month, with the rate of expansion quickening to the fastest since February 2022.
The report, produced by S&P Global for the NatWest lender, said activity in the north’s private sector has increased in each of the past six months.
Moreover, the increase in output in Northern Ireland was the strongest of the UK regions and nations covered by the report.
“The four months since the return of the Northern Ireland Executive have witnessed a strong private sector performance, and this shows no signs of slowing, indeed quite the opposite, with the pace of output, new orders and employment all accelerating in May,” said Ulster Bank’s chief economist Richard Ramsey.
“New orders growth rose at its fastest pace in 27 months and firms added to their staffing levels for the 17th successive month.
“Northern Ireland’s performance compared favourably with other UK regions, with NI topping the league table for output and employment,” he added.
The economist said a modest rise in sales left retail with the most subdued growth in May.
He said the other three sectors recorded “robust growth”, with manufacturers with the most positive 12-month outlook.
“Indeed, manufacturers are their most optimistic since this question was added to the survey back in 2017,” said Mr Ramsey.
“Conversely, whilst manufacturing firms are seeing output increase, they are reducing their headcount.
“This is an indication that manufacturers are increasing productivity through investment in capital equipment and perhaps the much talked about automation and AI.”
While there were many positive areas in the report, the economist said the PMI still exposed challenges facing the private sector.
“Firstly, exports are still falling,” he said.
“But the most significant is the ongoing increase in input costs, with Northern Ireland topping the UK league table.
“Wage pressures continue to be felt strongly in this respect.
“Retailers are recording the highest rates of cost inflation, in part linked to the rise in the national living wage, which is feeding into the prices that consumers pay.”
However, the PMI suggest construction costs are rising at their weakest pace in 45 months, an indicator that material cost inflation is continuing to come back from record highs.
“Despite the challenges, Northern Ireland’s private sector firms remain optimistic about the outlook, particularly manufacturers and services firms,” said Mr Ramsey.
“The big question though is how long the current growth spurt can continue.
With a UK General Election looming, whoever comes into power after July 4 will have to grasp the nettle that is the UK public finances.
“More tax and less spending are inevitable and whatever form this takes, it will be a headwind for private sector growth.”
The official government-endorsed measure of how the north’s economy is performing is due to be released at the end of the month.
The next Northern Ireland Composite Economic Index, considered the closest thing Stormont has to measuring GDP, will cover the first quarter of 2024.
The latest index, published in March, showed Northern Ireland’s economy contracted by 0.2% in the final three months of 2023.
It suggests the north avoided the technical recession announced the by UK’s Office for National Statistics for the second half of 2023.
Most of the independent forecasts for Northern Ireland anticipate a modest rate of growth in 2024.
