By Conor Lambe, Chief Economist at Danske Bank
Consumer confidence in Northern Ireland decreased in the second quarter of 2019. The Danske Bank Northern Ireland Consumer Confidence Index fell by three points from a reading of 139 in the first quarter of this year to a new reading of 136. However, when compared with the second quarter of 2018, the index was five points higher.
When compared with the first part of this year, consumers felt less confident about their current financial position, how they expect their financial position to change over the year ahead and their job security. However, they felt more confident regarding the amount they expect to spend on expensive items, such as furniture and holidays, over the next twelve months. There was no change relative to the first quarter of 2019 in the index reading related to people’s expectations of the amount they will save over the next year.
It’s important to note that, despite confidence levels falling over the quarter, there were still a number of factors which positively impacted how people in Northern Ireland felt in the second part of this year.
A quarter of those surveyed said that rising wages was the factor that had the largest positive impact on them. That’s largely a reflection of the fact that the Northern Ireland labour market is still in good shape. The latest data showed that over March-May 2019, the local employment rate hit a series high, the rate of economic inactivity fell and the unemployment rate, despite rising slightly, was still well below its long-term average. When the labour market is in good health, businesses usually have to pay higher wages to attract people into the jobs market, to recruit people from other companies and to retain their own talent. This appears to be what is currently happening in Northern Ireland, and indeed the wider UK.
One in ten people told us that low interest rates were impacting them positively. Interest rates in the UK remain low by historical standards, and we don’t expect them to go up in 2019. The rate of inflation in June was 2.0 per cent – exactly in line with the Bank of England’s target. With economic growth also remaining modest, the Bank of England’s Monetary Policy Committee (MPC) are not under significant pressure to start tightening policy. With uncertainty around how the UK will leave the EU persisting, we think that the MPC will wait and see how Brexit plays out before making its next move.
Seven per cent of people said that rising house prices made them feel more confident. When looking at year-on-year changes, house prices in Northern Ireland have increased in every quarter since 2013 Q4. The latest data for the first quarter of this year showed that, when compared with a year earlier, the price of detached houses, semi-detached houses, terrace houses and apartments all increased.
However, given that confidence fell, it would appear that the factors that negatively influenced people in the second quarter of the year had a greater impact than those that positively affected them.
Our survey showed that, for 39 per cent of respondents, political uncertainty and the lack of a Northern Ireland Executive had the largest negative impact on how they felt. Northern Ireland has been without a functioning devolved government for two and a half years and people have consistently highlighted this as a negative influence on confidence levels. The local political stalemate has also adversely impacted businesses. Until an agreement is reached to restore the devolved institutions, the political impasse will continue to act as a drag on business investment and consumer confidence.
Fourteen per cent of the people who completed our survey said that progress during the Brexit negotiations in recent months negatively impacted them, and a further ten per cent stated that the UK Government’s longer-term Brexit objectives was the factor that had the largest adverse impact on their confidence levels. These numbers were higher than the six per cent and seven per cent of people respectively who said that these two factors had a positive impact on them.
With the new Prime Minister Boris Johnson now in office, it seems as if the chances of a no-deal Brexit occurring are higher than they were previously. This outcome would have a negative impact on both consumer confidence and overall economic growth in Northern Ireland if it were to arise.
Sixteen per cent of people also said that the impact of higher prices on their household finances was the factor that impacted them most negatively. Despite the fact that inflation is now in line with the Bank of England’s target, some people are still feeling a squeeze from rising prices.
Looking ahead, political factors are likely to have the greatest influence on consumer confidence in Northern Ireland in the second half of 2019. Avoiding a no-deal Brexit and reaching an agreement with the EU, as well as restoring the Executive and the Assembly at Stormont would both prove beneficial to consumer confidence, business confidence and overall economic growth. Let’s hope we see both in the months ahead.
This article was published in The News Letter on 30 July 2019.