PwC's Latest UK Economic Outlook: Northern Ireland Ranks Second, Following London, in Economic Growth, Driven by Health, Retail, and Construction Sectors. Household Concerns Persist due to Inflationary Pressures.

According to the accountancy firm, the Windsor Framework has contributed to an improved outlook in this region.

Although the UK is showing signs of avoiding recession in 2023, it is experiencing lower productivity compared to other G7 nations, resulting in underperformance.

Furthermore, elevated consumer prices are expected to persist for the next few years, creating an ongoing economic challenge for residents of Northern Ireland by reducing their discretionary income.

PwC predicts a 0.6% economic growth in Northern Ireland during the three-month period ending in February, placing it second after London which experienced 0.9% growth. In contrast, the English regions of the West Midlands, South West, South East, and North East are forecasted to have a modest growth rate of only 0.2%.

The robust performance of Northern Ireland is attributed to its relatively larger presence in thriving sectors such as health, retail, and construction.

According to Greg Boyd, an economist at PwC Northern Ireland, the current economic growth in Northern Ireland is encouraging, indicating a likelihood of avoiding a recession while also alleviating concerns related to inflation.

Furthermore, the anticipated benefits of the Windsor Framework are expected to contribute to future growth in the region, providing increased certainty.

PwC's analysis indicates that the UK has navigated through the period of high inflation compared to the previous year, especially with the stabilization of wholesale energy costs.

However, the robustness of the economic recovery remains vulnerable to various risks, including potential geopolitical disruptions, sustained inflationary pressures, and a weakened pound. As a result, it is projected that prices will rise by approximately 20% by the end of next year compared to the beginning of 2021, placing continued cost pressures on businesses and households.

It is important to note that the impact of this cumulative price increase is particularly pronounced in Northern Ireland due to lower household incomes in the region. Moreover, NI households allocate a relatively higher proportion of their budget to energy and food, which are the primary contributors to inflationary trends.

Sustained attention should be directed towards long-term factors that drive economic growth in this region, such as promoting investments, increasing workforce participation, and providing robust support for skills development and education.

In general, the economic outlook for the UK appears to be more favorable, characterized by increased positivity, predictability, and reduced uncertainty as it emerges from a period of economic turmoil.

Since PwC's previous Economic Outlook report in September 2022, there have been significant improvements in the economic landscape. These improvements can be attributed to various factors, including more stable and lower prices in the natural gas market, a stronger pound, and fewer challenges than anticipated regarding the reopening of the Chinese economy.

PwC predicts that in a "subdued growth" base case scenario, the UK will experience a 0.1% growth in 2023, followed by an increase to 1% in 2024 and further growth of 1.6% in 2025.

According to the firm, the probability of a recession has decreased from three-quarters, as reported in September last year, to one third at present.

PwC also presents a less optimistic forecast in which the UK economy faces risks that materialize, resulting in a contraction of approximately 0.9% in 2023.

The firm identifies the most prominent risk as the possibility of sustained high inflation due to geopolitical factors or increased inflation in wages, services, or food prices. This risk could be further compounded by widespread and prolonged strikes across the public sector, leading to significant work hour losses.

On the other hand, PwC predicts that CPI inflation will gradually decrease and return to single digits around the middle of the year. By the end of the year, inflation is expected to stabilize at approximately 3-4% as previous spikes in energy and goods prices subside.

PwC anticipates that the tightening of financial conditions will have an impact on economic activity in the upcoming quarters.

The firm also projects that inflation will reach the Bank of England's 2% target by the end of the following year. However, despite this, consumer prices are expected to be 20% higher than at the beginning of 2021 when considering the cumulative effect.

Costs in essential sectors like food and services are likely to stay elevated, resulting in ongoing cost-of-living challenges for certain households.

Although growth is projected across various nations and regions in the UK, PwC notes that certain areas in England, characterized by slower growth, have been affected by post-pandemic challenges that have impacted the manufacturing sector and its associated supply chains.

PwC highlights that the UK's low productivity compared to other G7 countries is largely influenced by a significant level of labor inactivity among individuals aged over 50. The firm forecasts a projected increase in economic inactivity by 2030, estimating that 2.4 million people, primarily over the age of 65, will be affected due to population aging.

According to PwC, economic inactivity has remained high since the onset of the pandemic, driven not only by health-related reasons but also by other factors.

To address this issue, policymakers are urged to enhance the productivity of the existing workforce, while businesses are encouraged to refine their recruitment strategies and offerings to appeal to and accommodate a broader demographic, as suggested by PwC.