Set in a context of already heightened geopolitical tensions and in an environment where local businesses are facing increased employment costs, some may be wondering what the future of the economy looks like.
To understand this, it is important that we consider the potential impacts of recent events but also look for signals that point to the longer-term challenges and opportunities for the Northern Ireland economy.
US trade developments present challenges, but opportunity lies in improving wider trading arrangements
The global trading environment has seen significant change over the last couple of months, but for now the pace of policy change has slowed. The broad, country-specific, tariffs imposed by the US are currently paused at a 10% baseline until July (with the exception of China). Given these changes, governments around the world are considering longer-term policy implications and adjusting to this riskier and more uncertain global trade environment.
Currently, the impacts from the tariffs on Northern will be relatively lower than many other countries. There will be some local businesses impacted by the tariffs, both directly through US trade or indirectly through supply chains, potential policy-related complications or wider global demand shifts. But while we recognise that the tariffs may present some challenges, our economy, which is largely comprised of small and medium-sized enterprises, is mostly domestic-market driven, with trade predominately directed towards Great Britain and Ireland.
Therefore, looking at the main markets of focus for Northern Ireland trade may be the most important area, policy-wise, in the long-term. Lowering the bureaucracy associated with the Windsor Framework and making GB-NI and cross-border trade more seamless could have a significant overall positive impact on local businesses, our current trading profile, and our attractiveness as an investment destination. The upcoming UK-EU summit presents opportunity for resetting and refocusing.
Businesses could find long-term opportunities in staff retention and upskilling
Businesses in Northern Ireland are currently facing several other challenges, including higher employment costs following the autumn Budget combined with recruitment difficulties.
It would be prudent to assume that both of these challenges will continue. The public finances in the UK are unlikely to be in a position over the next number of years to support significant expansionary fiscal measures. In other words, under current spending plans and current borrowing costs, the Government won’t be able to afford to cut taxes.
For the labour market, longer-term signals point towards continued challenges when it comes to recruiting. Around 70% of the increase in payrolled employees in Northern Ireland in 2023 consisted of workers from outside the UK or the EU. However, forward looking projections suggest migration will fall by around 80% between then and 2030, further limiting the potential talent pool. Skills shortages are set to increase, according to the Ulster University Skills Barometer, and for those in the workforce, NI remains the region in the UK with the smallest percentage of people upskilling.
Even if we were to see people move out of inactivity and into the labour force, there could still be a skills mismatch between the increased labour force and the needs of businesses. Looking to the longer-term, business opportunities might lie in retention, training and upskilling of current staff.
Consumers have been resilient and could see pressures ease further
Consumer confidence in Northern Ireland has been resilient but inflation remains the big vulnerability moving forward. In our Danske Bank Consumer Confidence Index for 2024 Q4, the main factor people pointed to as negatively weighing on their minds was the impact of higher prices. This isn’t much of a surprise considering that over the past three years, prices in the food and non-alcoholic beverages category have risen by approximately 30%. This means that on average, a grocery shop costing £100 back in March 2022 could cost around £130 now.
With consumers still feeling negatively impacted by previous price rises, any return to rising inflation rates risks a disproportionately negative impact on their confidence levels.
While short-term risks may bring some pressure to inflation this year, the pace of price rises is expected to remain much lower than the high rates experienced over recent years. The Bank of England Monetary Policy Report published last week included an expectation that inflation could temporarily rise until the third quarter of this year, followed by a gradual decline.
And more widely, with wages rising at a faster pace than inflation, continued resilience in the housing market and further downward movement in interest rates, there are other factors that could ease pressure on household finances and maintain the resilient levels of confidence currently seen in Northern Ireland.
Despite the recent volatility, the economy is still expected to grow
Overall, global and national economic turbulence during the first part of this year has brought increased risks and uncertainties. But most economic forecasters are still expecting growth over the coming years, both globally and in the UK. We still expect to see continued economic growth in Northern Ireland, which over the longer-term could be improved upon by policy refinement towards seamless trade and increasing focus on staff retention and skills.
This article was published in The Belfast Telegraph on 13 May 2025.
