Growth to remain subdued but employment outlook improves

The Quarterly Sectoral Forecasts report suggests that the economy could grow by 1.2% this year and 1.0% in 2018 in line with previous forecasts.

However, Danske economist Conor Lambe said the lack of a functioning Executive presented risks.

“As the Stormont deadlock continues, political uncertainty remains at heightened levels in Northern Ireland,” he said.

“There are a number of consequences faced by the Northern Ireland economy due to the absence of devolved government. These include the lack of progress on important areas such as finalising and beginning to implement the Industrial Strategy and making decisions locally about how to spend the money allocated to Northern Ireland by the Conservative-DUP deal following the general election.

“There is also the risk that Northern Ireland is under-represented when it comes to engaging with the UK Government on Brexit and, without the devolved institutions in operation, local policymakers are somewhat restricted in their ability to help shape the future arrangements that will exist at the border with the Republic of Ireland.”

Nearly all sectors are expected to grow both in both years with the exception of public administration and defence,” he added.

“There is clear evidence that high inflation, and the resulting fall in real wages, are holding back consumer spending growth and this has been a big factor in the sluggish economic growth we have experienced so far this year.

“With businesses wary of investing in a climate of Brexit-related uncertainty, as well as the UK Government continuing with its programme of fiscal austerity, growth is likely to remain subdued over the next couple of years.”

However, the bank said it was upgrading its employment growth forecast for 2017 on the back of recent labour market data releases.

“Both the workforce and employee jobs data series published for the second quarter of this year showed an increase in the number of jobs in the economy,” said Mr Lambe.

“As such, we have revised our employment growth forecast for 2017 up from 0.1 per cent in our last report to 0.8 per cent.”

In common with other observers, the report also suggests interest rates will rise relatively soon, and the bank now expects the first rise to occur before the end of the first quarter of 2018, with a rise as early as next month a distinct possibility.

“While interest rates are expected to increase at some stage within the next few months, it is important to note that rate rises will probably be very gradual and so the interest rate environment is likely to remain relatively accommodative for some time yet.”