Northern Ireland forecast to be poorest performing UK region in 2019

Northern Ireland’s economic growth has been the slowest in all UK regions throughout 2018 and will remain at the bottom of the table for next year, according to the latest report from PwC.

The weak overall performance is unsurprising given the particularly difficult Q1 period which led at the time to warnings of a recession. Although Q2 showed improved growth, the prediction for 2019 from the UK Economic Outlook (UKEO) suggests Northern Ireland will remain the poorest performing of the 12 UK regions.

Today’s UKEO reflects the findings of the Demos-PwC Good Growth for Cities 2018 index which found that for the third consecutive year Belfast dropped down in the league of the UK’s 42 leading cities: now in 32nd place compared to 30th in 2017, 25th in 2016 and 5th in 2015.

The total economic growth of 0.8 per cent to date this year fell below even pessimistic predictions in March, when it was estimated growth would reach 1 per cent. Average UK growth was 1.3 per cent, with the fastest growing of the 12 regions being the South East of England at 1.6 per cent, Scotland at 1.5 per cent, London at 1.4 per cent.  

The best performing region in 2019 is predicted to the South East, where growth will reach 1.9 per cent with average UK growth at 1.6 per cent. Northern Ireland is forecast to increase to 1.3 per cent next year, an improvement but still trailing the average. Despite the easing of austerity in the Budget, the risk related to Brexit uncertainty is likely to be exerting a greater negative influence on business investment in Northern Ireland relative to the UK average.

Based on PwC’s main scenario for 2018-19, UK economic growth will average below 2% per annum in both of the first two decades of the 21st century. This period of sub-2% growth is the weakest since the end of the Second World War. The UK is not alone in suffering a drop in economic growth. G7 average growth is also projected to be below 2 per cent in the current decade.

PwC Northern Ireland chair Paul Terrington said:

 “With little change at Stormont and continued uncertainty surrounding the Brexit issue, it is up to businesses to ensure that Northern Ireland can meet its economic potential.

 “Across Northern Ireland, unemployment has fallen to record levels but this has not been reflected in either productivity or the creation of new high-value jobs across the breadth of the economy. Financial and business services are growing fast but face constraints on skills availability, and our level of economic inactivity remains the highest in the UK.

“The key is having a realistic understanding of the modern workforce. Investing in on-the-job skills training, applying flexible working initiatives to support older experienced workers to return to the jobs market and introducing innovative education programmes in conjunction with colleges and universities are a handful of ways in which employers can make a difference.”

The UKEO warns that UK debt is as a per cent of GDP is predicted to rise to match the levels seen during the financial crisis within the next five years – assuming a smooth Brexit transition. The total debt stock is projected to reach £6.7 trillion by 2023, rising from £5.1 trillion in 2017.

The analysis shows that while the government is likely to continue to reduce the size of its debt relative to GDP over the next five years, households and companies are both expected to borrow at a faster rate than economic growth. The net effect will be a gradual rise in the economy’s total debt-to-GDP ratio from 252 per cent in 2017 to just under 260 per cent in 2023.

Combining this with data from the Financial Conduct Authority is a cause for concern in Northern Ireland, commented Paul Terrington:

“Northern Ireland’s appetite for debt is a risk. We have higher levels of personal debt than any other part of the UK, with adults owing on average almost £4000. Those who have ‘problem debt’ are typically those with low incomes, who rely on credit to purchase essential items. These are the households who are especially vulnerable to rate increases, and moving beyond 2019, there is cause for concern here.

“We expect the Bank of England will raise its base rate to 2% by 2023. Although recent evidence shows Northern Ireland experienced the largest increase in weekly earnings out of all 12 regions (4.2 per cent compared to UK average 3.5 per cent), we have found that 60% of low income households that are challenged in repaying debts, find themselves in this situation more often because of higher repayment costs than falling incomes.

“There are ways in which rising debt levels can be mitigated, such as improving awareness around managing household finances and ensuring there are policies and regulations in place to prevent unsafe levels of lending.  Government and employers both have an important role to play.”

 

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