NI Chamber members have reported significant concerns about the impact of the Autumn Budget on business growth and investment. Whilst the latest Quarterly Economic Survey, published today (Wednesday 15 January) by NI Chamber and business advisors BDO reports that business indicators were generally positive in Q4 24, increased business taxation and the cost of labour are driving expectations to raise prices and dampening business prospects for 2025.
Members are much more optimistic about their own prospects for 2025 than the NI economy. While 50% of members expect their own business to grow in 2025, 25% expect the NI economy to grow in the next year. 29% of members expect their business to contract in 2025 and 47% expect the NI economy to contract.
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Business conditions
Most businesses that responded to the survey were trading well or reasonably in Q4 24 (83% vs.78% Q3), while 17% were covering costs/struggling.
A significant minority of members, 2 in 5 (39%), are seeing some slowdown in demand for their products/services, although this had been 56% at the start of 2024. For most, the slowdown is small with just 5% seeing any significant slowdown this quarter, down from 13% in Q3 24.
Autumn Budget
A majority of NI Chamber members believe the Chancellor’s Autumn Budget Statement will have negative consequences for their business and the NI economy. 79% said it will have a negative impact on their own business, while 81% believe it will negatively impact the NI economy. Respondents reported particularly high levels of concern around changes to employer National Insurance Contributions (NICs), with 43% of members highly concerned and 31% very concerned about its impact on their business. Half of members are concerned about the increase in the National Living Wage, while 37% are highly/very concerned about changes to inheritance tax.
Almost 3 in 4 (72%) members believe that tax changes arising from the Autumn Budget will have a negative impact on their own business growth and recruitment intentions. 61% believe it will impact negatively on their business investment intentions.
Confidence and investment intentions
The balance of firms confident that turnover will grow over the next year increased for Manufacturers and fell for Services in Q4 24. The Manufacturing turnover confidence balance stood at +48% (+33% Q3), a notable uplift since the previous quarter. In Services it was +38% (+44% Q3).
More businesses also expect profitability to improve than to deteriorate. In Q4 24 the Manufacturing profitability balance was +10% (+11% Q3) and for Services +11% (+21% Q3).
Investment intentions remain stronger for Manufacturing than Services. For Manufacturers, investment intentions around plant and machinery are +19% (+18% Q3) while in Services the balance remains negative at -9% (-10% Q3).
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Prices and costs
There has been a notable increase in the balance of firms expecting to raise prices in Q4 24. The balance for Manufacturers rose to +58%, up from +34% in Q3. The Services prices balance rose to +49% from +34% in Q3.
Labour costs remain the most significant internal cost pressure affecting both sectors. In Q4 24 95% of Services firms and 93% of Manufacturers were under pressure to raise prices because of labour costs. While utility cost pressures have eased, they are still putting pressure on 59% of manufacturers and 50% of services businesses.
In terms of external cost pressures, there are significant concerns over business taxation, particularly for Manufacturers. 71% of Manufacturers reported it as a pressing concern in Q4 24, compared to 9% in the same quarter last year. 65% of Services firms also reported it as a concern, which is up from 28% in Q4 23. Inflation is still a concern for around half of members but particularly for those in Services (60%).
Cash flow
There are mixed fortunes in terms of cashflow position in Q4 24 - a striking improvement in Manufacturing with a positive cashflow balance and continued deterioration in Services, where the cashflow balance is negative.
Recruitment
The balance of firms expecting employment to grow in the next three months was positive for both sectors in Q4 24, meaning more firms are expecting employment to grow than contract.
However, both balances continued to fall, suggesting that fewer businesses are expecting to grow their employment base. The balance of Manufacturers expecting employment to grow in the next three months fell to +16% after a period of increases (+20% Q3). For Services the balance continued a downward trend, falling to +10% (+24% Q3).
Recruitment is still taking place, with recruitment intentions stronger among Manufacturers than Services. In Q4 24 79% of Manufacturers and 70% of Services were trying to recruit.
Recruitment difficulties, which have grown significantly for more than a decade now, remain persistently high for both sectors, impacting 76% of Manufacturers and 77% of Services in Q4.
Regional position
In Manufacturing, Northern Ireland ranked in the top four UK regions for 10 of the 11 indicators in Q4 24, compared to three in Q3. The Manufacturing sector’s strongest regional position is with the export sales balance for the last three months, ranking first across the UK regions. It is weakest on recruitment intentions over the next three months, although still ranks fifth across the 12 UK regions on this indicator.
In Services, Northern Ireland ranks in the top four UK regions for five of the eleven indicators (two in Q3). The Services sector’s strongest regional position in Q4 was for export sales and employment in the last three months, ranking first across the UK regions for both. The Service sector is weakest with cashflow, ranking eighth overall.
Commenting on the report, Suzanne Wylie, Chief Executive, NI Chamber said: “This latest report outlines the significant implications of the most recent Autumn Budget. Whilst many of our very resilient members remain optimistic about their business prospects for the year ahead, the consequences of the alarming acceleration of the tax burden on businesses are deeply concerning and are likely to have significant longer-term implications once they take effect from April.
“While businesses acknowledge the need to stabilise public finances and support investment in public services, in the absence of material growth, the increased tax burden, with significant increases in employer NICs, will add to already high business costs. This report provides key insights into the significant concerns employers have and highlights the impact it will have on confidence and investment intentions.
“Despite the challenges, there are some green shoots of promise. Northern Ireland’s regional performance is generally good and important indicators, including export balances are encouraging relative to the very low UK average, particularly for Manufacturers. To encourage more export and investment, businesses in Northern Ireland need an urgent injection of confidence from the NI Executive. The requires immediate delivery on challenges like wastewater infrastructure, and a clear, long - term ambitious plan for growing the economy over the next decade and beyond.”
Brian Murphy, Managing Partner, BDO NI added: “Businesses right across Northern Ireland are starting this year on a much stronger footing than last, with 83% reporting they are trading positively, up from 78% twelve months ago.
“It is reassuring that fewer than three in 10 expect their business to decline over the year, with 20% anticipating no change, and half predicting growth. This is encouraging as, despite the concerns respondents may have about the economic outlook, they believe their businesses will either hold their own, or even grow.
“Respondents believe their turnover will grow more strongly than their profitability, but it should be welcomed that most believe their profits are at least set to remain positive.
“Since this survey was conducted, we have witnessed further challenges in the markets, which may impact business confidence. However, it is important to reflect on the fact that although the Autumn Budget has created concerns for local businesses, the vast majority still believe they will trade positively in 2025, with half planning for – and anticipating – growth.
“We appreciate the NI Executive has little sway over the macroeconomics of the UK and the Treasury’s fiscal policies. However, there are a number of areas – such as infrastructure investment, planning reform and an overhaul of NI Water – where they could make positive decisions to help local businesses. We encourage them to take such action and help local firms deliver upon their growth potential.”
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