Northern Ireland’s economic growth is expected to lag behind the rest of the UK, according to the latest PwC UK Economic Outlook.
Growth in Northern Ireland (NI) is expected to average between 2.6% to 3.1% in 2022, 0.5 percentage points below the UK average. This is largely due to its weaker performance in sectors that its economy concentrates on, such as manufacturing, and wholesale and retail.
Commenting on the report, Dr David Armstrong, Consulting Partner and Government & Health Industries leader for PwC Northern Ireland, said:
“The economic landscape in NI, and indeed, across the UK, is exceptionally complex right now.
“With so many competing factors, both locally and globally, it is easy to believe that the challenge is too big to overcome. Indeed, with the unquestionable need for short term measures to mitigate cost of living pressures right now, it would be easy to lose sight of the longer term solution to this current crisis.
“However, the only way we will achieve real, sustained improvements in our economy is to improve our regional productivity which, if it were to catch up to the UK-wide sectoral medians, could add £7bn to NI’s economy in 2023.”
The PwC Economic Outlook shows that NI has the lowest productivity of any UK region; around 17 ppts below the national average. This is due, in part, to far fewer jobs in high-productivity sectors such as financial services. But even within sectors, NI firms are less productive – with a significant productivity gap in both the production sector (primarily manufacturing) and the services sector.
Dr Armstrong adds: “One of the most effective ways to accelerate future productivity growth is through investment in a broad range of skills, and in particular, to target investment in skills that will be of increasing importance in the years to come. This includes green jobs and the priority clusters outlined in the ‘10x Economy’ vision, such as cybersecurity, AI and robotics.
“PwC continues to recommend increased investment in business-led reskilling initiatives to raise skills levels in NI, in the areas which have the greatest long term impact and contribute to productivity-led economic growth. Indeed, all sectors across NI need to work together to drive innovation and investment in our local economy to capitalise on areas of strength including fintech, agri-business and manufacturing. And accelerating our move towards net zero needs to remain a focus. NI generates almost 46% of electricity from renewables, compared to almost 40% for the UK as a whole, but there is clearly more to be done to move away from the dependence on fossil fuels.”
Inflationary pressure drives recession risk
The PwC Economic Outlook also indicates that NI workers are facing a c.£2,000 hit to their real wages by the end of the year, as the economy confronts a highly volatile and uncertain inflationary outlook.
The impacts are likely to be more pronounced in NI for two reasons.
Firstly, experimental statistics based on HMRC data show that nominal median wages in NI are growing at the slowest pace, 4.7% in the year to July 2022, compared to 6.6% for the UK as a whole. Therefore, any squeeze on real wages at a UK level is likely to be even sharper in NI.
Secondly, three of the top four Consumer Price Index measures make up a much bigger proportion of NI household spend, than the UK average; meaning that rapid price rises in things like heating oil, electricity, food, and motor fuels have a bigger impact on households here than across the UK.
Inflation rates are also highest for those who are most vulnerable and therefore least able to flex their household budgets. As a larger proportion of people in NI live in low income households, this suggests a higher rate of inflation when compared to the UK average.
Although the UK economy will continue to grow at a rate of between 3.1% and 3.6% in 2022, PwC has now forecast that the UK is likely to enter a recession as early as this year, followed by a period of negligible or negative growth through 2023 and 2024.
