- 77% of businesses in NI are performing well or reasonably.
- 23% are just covering costs or are struggling/facing closure.
- Recruitment activity is stable and relatively positive. However, 71% of businesses are still experiencing difficulty filling vacancies.
- Inflation remains one of the most pressing concerns and key cost issues include rising labour costs (including minimum wage increases), business rates and energy costs.
- The share of businesses expecting to raise prices increased in Q1 24.
A report published today (Tuesday 16 April 2024) by NI Chamber and BDO NI found a mixed picture within Northern Ireland’s trading landscape, with manufacturing businesses facing a challenging Q1 24, compared to service businesses experiencing a relatively strong quarter of growth.
Businesses from both sectors clearly indicated a need for strategic direction from policy makers, prioritising a new fiscal framework for Northern Ireland, a new economic strategy and capital investment to challenge low growth.
Most businesses who responded to the survey are currently trading well or reasonably (77%). Around one in four (23%) are just covering costs or struggling. Just over half (56%) are seeing some slowdown in demand, although for most only a little (49%). Some 7% are seeing a significant slowdown in demand, which is down significantly from 13% at the end of 2023.
Inflationary pressures, despite easing, continue to be a key concern, along with rising labour costs. In Q1, more businesses said they expect to raise prices after a period where this showed signs of easing. Almost 3 in 5 (57%) of respondents were operating below capacity in Q1 24 (49% Q4 23).
Business Priorities
In the first QES since the restoration of the institutions at Stormont, NI Chamber members were asked to identify their priorities for the Executive. The top three responses were a new economic strategy, a long-term infrastructure plan and an independent review of public spending.
When asked to identify their priorities for the Westminster Government, the top response from NI businesses was a new fiscal framework for funding public services, followed by competitive business taxes. Access to international labour & skills and investment in innovation support were the joint third responses.
Manufacturing
Manufacturing’s overall performance was mixed in Q1 24, with a weak domestic trading performance and only marginally better in terms of its export performance. Inflationary pressures remain but have eased for the sector.
The sector’s regional performance is generally mixed, strong on investment intentions and mid-ranking on exports and jobs. Northern Ireland is the lowest ranking UK region in terms of the share of manufacturers operating at full capacity (19% vs. UK 35%). Confidence around turnover growth in the next 12 months improved in Q1 24 but confidence around profitability dipped, with the NI manufacturing balance lowest across the UK regions.
More than twice as many manufacturers were concerned about business rates in Q1 24 compared to a year ago (23% Q1 23 vs. 54% Q1 24) and corporation tax (15% Q1 23 vs. 32% Q1 24). Competition has also been a growing concern for the sector.
Services
The services sector’s trading performance remains relatively strong, and survey respondents are confident this will continue into 2024. However, recruitment intentions are easing and expectations around raising prices are on the increase again, with labour costs a particular cost pressure for the sector.
Most service sector indicators remain above the UK average, with particularly strong indicators around trading performance and cashflow. The sector ranks first across the UK regions in terms of the share of businesses operating at full capacity.
Confidence around turnover growth in the next 12 months is strong for the service sector, and while confidence around profitability is less strong, it remains positive and is more positive relative to Northern Ireland’s manufacturers.
Prices & costs
More businesses are expecting to raise prices in Q1 24. In Q1 24 the balance of manufacturers expecting to raise prices was +38% (+29% Q4 23) and for services (+61% vs.+51% Q4 23). This is down from a peak of +88% for manufacturers in Q1 22 and for services at +76% in Q4 22.
Labour costs remain the biggest internal cost pressure for both sectors. In Q1 24 86% of manufacturers (92% Q4 23) and 81% of services (91% Q4 23) reported labour costs as a key pressure. Raw material costs are a pressure for 71% of manufacturers, which is down from 86% a year ago. Energy cost inflation continues to slow but 69% of members are still dealing with increased energy costs over the last quarter (71% Q4 23).
In terms of external cost pressures, inflation remains one of the most pressing concerns but continues to show positive signs of easing for both sectors. In Q4 23 51% of manufacturers reported inflation as a greater concern than 3 months ago, down from 57% in Q4 23 and 79% in Q1 23. For services, 52% report inflation as a key concern in Q1 compared to 57% in Q4 23 and 77% a year earlier.
Competition has been a growing concern for both sectors with 41% (43% Q3) of manufacturers and 44% (44% Q3) of services highlighting competition as a greater concern than 3 months ago. Business rates are a concern for 54% of manufacturers, up from 23% for the same quarter in 2023.
Commenting on the report’s findings, Suzanne Wylie, Chief Executive, NI Chamber said:
“Businesses have made it clear that they need and expect strategic decision making from the NI Executive to counter low growth and increasing costs. Through this survey, they have articulated the business need for the roll-out of a new economic strategy and a long-term infrastructure plan, whilst also indicating strong support for a review of public spending as a pre-requisite to revenue raising. With a General Election anticipated later this year, our member businesses are also looking to Westminster, with a new ambitious Fiscal Framework a top priority along with a competitive business tax environment, as well as access to international labour and investment in innovation support.
“These findings correlate strongly with the experiences and challenges our members across all sectors report on a daily basis and provide a very strong evidence base for our engagement with both the restored Executive and UK Government Ministers.”
Brian Murphy, Managing Partner, BDO NI added:
“Local businesses now have a once in a generation opportunity with clarity about our trading relationships – unrestricted access to both the EU and GB markets, and a new Executive that provides stability.
“The partnership between local firms and our Ministers took centre stage recently in the US, gaining international recognition and support. The message was clear and welcomed with great enthusiasm: if you want access to the UK and EU markets, look no further than NI as the most exciting region on these islands to invest, work and live.
“To help achieve this potential we need our new Ministers to act. Nearly two thirds (63%) of local businesses want a new economic strategy for Northern Ireland, recognising our unique positioning and opportunities, with 64% backing calls for the UK Government to introduce a new fiscal framework for how we manage, support and fund public services in Northern Ireland. We need a fresh approach to deliver a system that reflects the realities of today and supports the planning for tomorrow.
“Businesses issues and asks may be well rehearsed, but our opportunities are unlimited. Momentum has been built and we cannot let it stall. Ministers need to make the decisions to support investment and job creation by delivering structures that will facilitate and incubate growth, thereby building a better, more productive, and more prosperous Northern Ireland for all.”
