In its latest Northern Ireland Quarterly Sectoral Forecasts report, the bank said it expects the local economy to grow by around 1.1% this year, a marginal increase from its previous forecast of 1.0% and slightly below its forecast of 1.3% for the UK as a whole in 2025.

The bank also expects the rate of growth in Northern Ireland to remain steady at about 1.1% in 2026, in line with its UK forecast, as both domestic and global factors are projected to continue to weigh on growth.

Among these challenges, Danske Bank’s report highlights that the rate of inflation is above target and previous price rises are continuing to put pressure on households; business taxes are higher with resultant adverse impacts on employment and wages; and uncertainty related to global trade and the geopolitical environment is persisting.

On the upside, Danske Bank said that while fiscal policy in the UK remains uncertain, government spending is currently supporting growth, and the Bank of England is expected to continue to ease monetary policy and slowly reduce Bank Rate over the coming year.

Conor Lambe, Chief Economist at Danske Bank said: “Economic growth is expected to remain relatively modest in both Northern Ireland and the wider UK. Business taxes are higher, inflation is running above target and uncertainty around fiscal tightening is increasing. As such, there will be significant attention on the measures announced in the Chancellor’s upcoming Budget in November. Alongside these domestic factors, uncertainty related to global trade policy and geopolitical developments also remains elevated.”

Sector Outlook

Danske Bank said it continues to expect the business services sectors in Northern Ireland to experience the strongest rates of growth.

The information & communication sector is projected to be the fastest growing, with output forecast to expand by about 1.8% this year and around 2.0% in 2026, while the professional, scientific & technical services sector is expected to experience growth of around 1.7% both this year and in 2026.

With consumer confidence increasing in the second quarter of the year the consumer-focused sectors of the economy are expected to grow in 2025 and 2026, supported by the projected continued loosening of monetary policy and an expected gradual decline in inflation.

Danske Bank is forecasting that output in the wholesale & retail trade sector will expand by around 1.3% this year and 1.1% next year. Output in the accommodation & food service sector is projected to grow by about 1.2% in 2025 and 1.1% in 2026.

The manufacturing sector continues to face a number of challenges including new tariffs, skills shortages, input cost pressures and a soft investment environment, leading to a forecast of 0.8% growth in 2025 and the same in 2026.

Labour Market Outlook

Danske Bank said the local labour market remained resilient in the first quarter of this year but there are some indications it is beginning to soften as higher business costs and global uncertainty start to take their toll.

The bank is now projecting that the growth rate of the annual average number of employee jobs will be around 1.5% in 2025, However, it does not expect this pace of annual growth to be maintained, with jobs growth forecast to slow to about 0.4% next year.

Danske Bank is also forecasting that the unemployment rate in Northern Ireland will average around 2.3% this year, before rising to an annual average of about 2.6% in 2026.

Employee jobs growth in the construction sector is expected to outpace the average for the overall economy this year at around 2.9%, with a projected 1.0% expansion next year.

The professional, scientific & technical services sector is forecast to experience jobs growth of around 1.6% this year with the number of jobs in the administrative & support services sector projected to grow by about 1.7% in 2025.

Risks and Uncertainties

Danske Bank said there are several risks and uncertainties around its projections.

Conor added: “Squeezed public finances and the need to remain within the fiscal rules means that the direction of UK fiscal policy is uncertain. Should the 2025 Autumn Budget contain more tax increases and/or spending cuts, the performance of the economy could be negatively affected.

“In addition, if inflation were to be higher than projected, this could lead to diminished household spending power and weaker prospects for economic growth, particularly if monetary policy needs to remain tighter than expected in response.”