August sees rise in output following decline in July

Data from the Ulster Bank Northern Ireland PMI report shows the rate of input cost inflation accelerated fastest since November 2011 as firms raised output prices at a sharper pace.

Ulster Bank chief economist in Belfast, Richard Ramsey said the economy had witnessed “something of a ‘V-shaped recovery’” over the last three months.

“Business activity dropped in July, following the UK vote to leave the EU in late-June, before rebounding in August. Northern Ireland’s private sector performance has followed a similar pattern, albeit the rebound has been much weaker.”

While local firms reported a return to growth in activity in August, he said it was the weakest rate experienced this year, and well below the pre-downturn long-term average.

“Furthermore, Northern Ireland’s private sector did not experience the recovery in new orders last month that occurred in the rest of the UK. Order books amongst local firms shrank for the second successive month. This is due to subdued domestic demand, as export orders increased; no doubt boosted by the fall in sterling.”

While headlines may focus on a return to growth and ongoing job creation, Mr Ramsey stressed they could not conceal the “notable weaknesses” lying beneath.

“In particular, the two growing concerns are the surge in inflationary pressures and stagnation within the local services sector,” he said.

“Last month, service sector firms reported their first fall in staffing levels in 39 months. With orders contracting for the last two months there is no sign that activity will improve anytime soon. It is a similar story for construction firms, which reported their fifth successive month of falling orders in August.

“Overall, the rebound in private sector activity is largely due to the manufacturing and retail sectors. Indeed, the former recorded the fastest rate of growth in output and new orders last month of all the sectors.

“Meanwhile the fastest rates of employment growth remain within the retail sector. Clearly the manufacturing and retail sectors, cross-border shopping / tourism, are benefiting from the marked depreciation in sterling that has occurred in recent months.”