The latest research from NI Chamber and BDO NI indicates that business performance in Northern Ireland was steady in Q2 24, with some signs of growth and positivity around the current trading environment.
Most businesses are currently trading well (33%) or reasonably (50%), the highest share since the start of 2023. 17% are just covering costs/struggling, which is down from 23% in Q1 24.
Almost all key indicators were positive in the second quarter of the year. Domestic and export order balances were positive, suggesting that more businesses are seeing stronger order books than those seeing any contraction.
However, cashflow is a growing concern among both manufacturing and service businesses. In Q2 24, the manufacturing cashflow balance turned negative (-10%), which is its weakest position since the end of 2022 and ranks it lowest across the UK regions for this indicator. For service businesses, the cashflow balance also turned negative in Q2 24 at – 2%.
Demand
46% of members experienced a slowdown in demand for their products/services, which was down from 56% in Q1. While most are only seeing a little slow down, a rising share saw a large slowdown in Q2 24, 12% compared to 7% in Q1 24.
Confidence and investment intentions
Whilst cashflow is a concern, confidence around turnover growth among manufacturing businesses was high in Q2 24 (+48%).
Among services businesses the same balance was +41%.When asked about confidence around profitability growth, NI Chamber members were less positive about the next twelve months. In Q2 24 the profitability balance was +26% for manufacturing and +11% for services.
As has been the trend previously, investment intentions were stronger among manufacturing than services businesses. In terms of intentions to invest in training, the balances stood at +32% for manufacturers and +27% for services. Investment intentions around plant and machinery continued to improve for manufacturers, standing at +30%. It was just +4% for services.
Prices and costs
The pressure to raise prices balance has softened in Q2 24 for both sectors, continuing an overall trend since its peak in 2022. In Q2 24 the balance of manufacturers expecting to raise prices was +28% (+38% Q1 24) and for Services +50% (+61% Q1 24). Those balances had been as high as +88% for manufacturers in Q1 22 and +76% for services in Q4 22.
For the most part, internal cost pressures have been easing, with the notable exception of labour costs which continue to dominate as the main internal pressure on businesses to raise prices, affecting 4 in 5 members. Two-thirds of manufacturers were affected by raw material costs and 1 in 2 businesses in both sectors were under pressure to raise prices because of utility costs.
In terms of external cost pressures, there has been a significant drop in the share of members concerned about inflation compared to the same quarter last year. In Q2 24 44% of manufacturers (76% Q2 23) and 40% of services (74% in Q2 23) were concerned about inflation.
Competition was the biggest external issue impacting on both sectors.
Recruitment
Recruitment activity remains strong, with expectations to take on more people continuing to grow but this is set in the context of persistent difficulties in getting people.
Some 79% of manufacturers and 68% of services businesses were trying to recruit last quarter, both up on Q1 24. And while the share of businesses facing recruitment difficulties has eased over the last couple of years, this challenge remains persistently high at 78% for manufacturers and 75% for services in Q2 24.
More businesses say they are investing in training, which is one response to recruitment challenges.
Labour mobility
According to the survey, 2 in 5 NI businesses (38%) have been impacted by a change in the minimum salary for a Skilled Worker visa, which increased from £26,200 to £38,700 following an announcement in April 2024.
15% have been affected by immigration restrictions on the cross-border movements of non-Irish and non-British citizens on the island of Ireland, while 11% have been directly affected by issues concerning cross-border workers who are resident in the Republic of Ireland with hybrid working arrangements.
Good Jobs
In February this year, the Economy Minister announced an objective to create ‘Good Jobs’. In Q2, NI Chamber members were asked to rate how important a range of interventions put forward at that time are for creating ‘good jobs.’
Improving careers advice is considered most important, with 83% of survey respondents ranking it as ‘essential’ or ‘very important’. Other essential/very important issues include creating more and better apprenticeships/skills academies (81%), altering NI’s economic structure to support industries that provide good jobs (75%) and investing in affordable childcare and fair pay for childcare workers (71%).
Commenting on the survey findings, Suzanne Wylie, Chief Executive, NI Chamber said:
“Whilst it is good to observe strong trading performances from a majority of NI Chamber members, these survey results indicate that cashflow is a pertinent concern, particularly for Northern Ireland’s manufacturing sector, whose cashflow position is lowest across the UK regions.
“We will be maintaining a watching brief on this important indicator. A weakening cash-flow position not only highlights the need for good payment practices, but also underlines why policymakers must take note of the impact of the challenges businesses face when operating in a prolonged high-cost trading environment.
“Access to people and skills has been a persistent challenge for NI Chamber members, which is evident again this quarter. 3 in 4 members are reporting difficulties recruiting, while 2 in 5 are directly impacted by a very significant 48% increase to the minimum salary for a Skilled Worker visa which employers now need to pay. A notable share of firms are also reporting concerns about the business implications of immigration restrictions on cross-border movements, all of which is adding to cost pressures.
“Competition is now seen as the greatest external issue facing businesses. It is vital that Government here and, in the UK, take these challenges for business and the implications for economic growth into account to enable businesses to meet their aspirations and for the NI economy to thrive.”
Brian Murphy, Managing Partner, BDO NI added:
“The Q2 QES results clearly show businesses across manufacturing and services are operating with a measured confidence, particularly in relation to investment decisions and turnover growth. With the majority of businesses trading either well or reasonably, you can understand where this confidence stems from. It has to be acknowledged though that this is in the face of continuing concerns about the rising cost base businesses are contending with, and the impact this has on cashflows. There’s no doubt that NI businesses will be looking carefully at cashflows as they plan for the future.”
“Companies continue to invest in recruitment albeit with the challenge of accessing the right labour force and skills. More and more businesses are proactively trying to address this issue by investing in training and professional development initiatives that allow them better access to a wider range of skills.
“The benefits of good career advice for our young people for example, is something we are seeing businesses investing time and money in. Similarly, there is an acknowledgement from members across industries that to attract and retain staff, areas such as affordable childcare, better paid apprenticeships and alternatives to zero hours contracts need to be addressed.
“Developing our future leaders, giving them the tools and the motivation to develop their careers here in Northern Ireland will play a key role in addressing challenges currently being faced by the business community – thus providing the right foundation for growth and investment.”
