'These strengths should help the region navigate the challenges ahead': Northern Ireland's economy continues to outperform the rest of the UK despite global headwinds

Northern Ireland's economy continued to outperform the rest of the UK during the opening months of 2026, but growth is expected to slow later this year as businesses face rising energy costs, geopolitical uncertainty and weakening business confidence.

That is the key finding of Bank of Ireland's latest UK Economic Outlook, which shows the region remains one of the UK's strongest-performing economies despite an increasingly challenging global backdrop.

According to the report, Northern Ireland's economy expanded by 3.6% year-on-year and 0.7% quarter-on-quarter during the first quarter of 2026, based on the latest Composite Economic Indicator. While growth is forecast to continue, economists expect the pace of expansion to moderate through the remainder of the year before improving again during 2027.

The report notes that Northern Ireland has enjoyed two years of robust economic growth, outperforming the wider UK economy. However, more recent business surveys suggest activity softened during the second quarter as firms experienced weaker demand and growing uncertainty.

Conall Mac Coille, Group Chief Economist at Bank of Ireland, said Northern Ireland remained well placed to weather the challenges ahead despite a more difficult operating environment.

"Northern Ireland's economy has performed strongly over recent years and continues to compare favourably with many other parts of the UK," he said.

"However, businesses are operating in an increasingly uncertain environment, with higher energy costs and global geopolitical tensions creating real challenges.

"The latest data suggests that economic activity remains resilient, but momentum is beginning to ease after a prolonged period of strong growth.

"While we expect some moderation in activity over the remainder of 2026, Northern Ireland enters this period from a position of relative strength, supported by a resilient labour market, healthy levels of economic activity and a housing market that continues to hold up well. These strengths should help the region navigate the challenges ahead."

The outlook identifies escalating geopolitical tensions, particularly in the Middle East, alongside persistently high energy prices as the biggest risks facing both the Northern Ireland and UK economies.

Although these factors are expected to dampen economic activity over the coming months, Bank of Ireland believes conditions should gradually improve during 2027 as inflation eases, confidence recovers and financial conditions become more supportive.

Across the UK, GDP growth is forecast to reach 0.9% this year before rising to 1.1% in 2027. Inflation is expected to average 3.1% during 2026 before falling to 2.5% next year.

The report also expects the Bank of England to leave interest rates unchanged for the remainder of this year before beginning to cut borrowing costs during 2027 as inflationary pressures continue to ease.

Commenting on the wider UK economy, Conn Creedon, senior economist at Bank of Ireland, said the incoming UK Government faces significant economic challenges alongside the uncertain global backdrop.

"The new Prime Minister and Chancellor must grapple with domestic challenges including sluggish growth and strained public finances amidst heightened geopolitical risks," he added.

Despite those pressures, the report concludes that Northern Ireland's resilient labour market, relatively healthy housing sector and sustained levels of economic activity leave the region better positioned than many parts of the UK to navigate an increasingly uncertain economic environment.