Danske Bank has lowered its forecast for economic growth in Northern Ireland in 2025 as inflation, higher business taxes and global factors weigh on the outlook.
In its latest Northern Ireland Quarterly Sectoral Forecasts report, the bank said it expects the local economy to grow by around 0.9 per cent this year, a downward revision from its previous forecast of 1.4 per cent.
Danske Bank said it expects the rate of growth to be modest this year, reflecting the lack of momentum in the economy, inflation being likely to run higher than previously expected, the increase in business costs following the UK’s autumn Budget and elevated uncertainty stemming from emerging global risks.
The bank then expects the rate of growth to pick up to about 1.4 per cent in 2026.
Conor Lambe, Chief Economist at Danske Bank said: “We expect the rate of growth to remain relatively modest this year. Additional government spending following the announcements in the autumn Budget may support output levels and the expected continued loosening of monetary policy should also gradually support household and business spending.
“However, inflation is forecast to be higher than previously anticipated which could weigh on spending power, while the impact of previous price rises is continuing to weigh on consumers. The upcoming increase in business taxes may negatively impact on investment and recruitment while heightened global uncertainties could also drag on spending and investment levels.”
Sector outlook
The business services sectors, which are traditionally strong performers in Northern Ireland, are expected to experience the strongest rates of GVA growth this year and next.
The professional, scientific & technical services sector is expected to experience output growth of around 1.6 per cent in 2025 and growth of about 2.2 per cent in 2026. The information & communication and administrative and support services sectors are expected to experience growth of about 1.5 per cent and 1.2 per cent respectively this year, then above 2 per cent next year.
The projected continued loosening of monetary policy, lower inflation than experienced in recent years, strong wage growth and a resilience in consumer confidence are factors that could positively impact the consumer-focused sectors of the economy.
Output in the wholesale & retail trade sector is expected to expand by around 1.1 per cent this year and by about 1.7 per cent next year. Growth in the accommodation & food service sector is projected to be just slightly slower, at around 1.0 per cent in 2025 followed by 1.6 per cent in 2026. Meanwhile, the arts, entertainment & recreation sector is expected to experience a slightly slower pace of growth.
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Output in the manufacturing sector is projected to increase by around 0.4 per cent in 2025, reflecting the challenges facing the sector, but then by about 1.4 per cent in 2026. Construction is expected to experience a stronger performance, with output projected to rise by around 1 per cent in 2025 and about 1.5 per cent in 2026.
Labour market outlook
Danske Bank is projecting that the growth rate of the annual average number of employee jobs will slow to around 0.5 per cent this year and then increase slightly to 0.6 per cent in 2026 as economic growth strengthens.
The Bank is also forecasting that the unemployment rate in Northern Ireland will average around 2.0 per cent this year, before rising to an annual average of about 2.4 per cent in 2026.
The professional, scientific and technical services sector is forecast to experience relatively strong jobs growth of around 1.2 per cent this year with the administrative & support services sector set to follow closely with jobs growth of about 1.0 per cent. Employee jobs growth in the construction sector is expected to outpace the average for the overall economy this year.
The accommodation & food service and arts, entertainment & recreation sectors are expected to experience jobs growth of around 0.7 per cent in 2025, while the wholesale & retail trade sector is projected to see a more modest increase of about 0.4 per cent this year.
Risks and uncertainties
Danske Bank said there are several risks and uncertainties around its projections.
Conor Lambe added: “We expect inflation to average around 3.2 per cent this year, but there are current and emerging risks that could lead to inflation rising at a faster pace.
“If inflation were to come in higher than expected, more pressure could be exerted on household purchasing power and that could weigh down on the pace of economic growth. Monetary policy may also need to remain more restrictive which could dampen economic activity.
“There is also a risk that global developments could weigh on growth. The global political and economic landscape, including with regards to global trade flows, is particularly uncertain at this time.”
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