Northern Ireland leads UK regions’ economic growth, as new government inherits a strengthening economy

• Northern Ireland is expected to be the fastest-growing region alongside London this year, up 1.2% in real GDP.

• The UK’s GDP is predicted to grow by 1.0% in 2024, up from the 0.5% prediction made in PwC’s November 2023 Outlook.

• Inflation has returned to 2% target, and projections suggest it will hover around this level for the remainder of 2024.

Northern Ireland is leading the UK’s recovery with positive signs of growth, according to the latest PwC UK Economic Outlook. Despite post-pandemic challenges, the region is projected to achieve a 1.2% growth rate this year, tied for the highest in the UK. This growth is driven by Northern Ireland’s robust public sector and thriving agriculture industry. Although the growth rate is modest compared to historical standards, it underscores the resilience of Northern Ireland's economy amid the UK’s broader low-growth environment. 

Economic growth is expected to differ geographically across the UK, with London (1.2% growth) and Northern Ireland (1.2%) set to lead the way for 2024, while the West Midlands (0.7%), South East (0.8%) and North East (0.8%) are likely to lag behind.

Cat McCusker, Regional Market Leader for PwC Northern Ireland, said:

"The expectation for Northern Ireland to lead other UK regions this year is an encouraging sign of continued progress. While it may be slower compared to historical standards, it demonstrates the region's ability to navigate challenges and capitalise on opportunities. 

“While the NI economy is growing at a faster rate than most of the rest of the UK, more needs to be done to drive long-term growth, and we need to continue to encourage inward investment and accelerate support for skills and education in order to achieve that.”

A key factor driving Northern Ireland's growth is the sectoral composition of its economy, largely driven by the public sector. The three strongest growing sectors in the UK for 2024 were linked heavily to the public sector; health & social work (2.7%), public admin & defence (2.2%), and education (1.2%). 

NI’s composition renders the region less vulnerable to declines in consumer spending and business investment, providing a stable foundation for economic progress. Although Northern Ireland's GDP per capita is nearly 20% below the UK average, the region's performance highlights its significant potential for further development.

The UK has transitioned from being a poor-performing outlier on inflation to one of the few advanced economies where inflation is currently back on target, at 2%. This development is particularly beneficial for Northern Ireland households, which have been disproportionately affected by increases in food and energy prices compared to other regions. However, with consumer prices having risen by 20% in three years, households will continue to face significantly higher costs than before, albeit the worst of the increases appear to be behind us.

It is clear challenges such as high economic inactivity rates persist.  Stubbornly high inactivity levels, largely driven by long-term sickness, now affects 9.4 million individuals in the UK, marking a 13-year high. Although economic inactivity in Northern Ireland has nearly returned to pre-pandemic levels, it still remains significantly higher than the UK average, ranking third among UK regions, behind Wales and the North East, according to the latest ONS labour market estimates. Efforts to address these challenges and further enhance economic performance are crucial for sustained growth and prosperity.

Greg Boyd, economist at PwC Northern Ireland, said:

“Positive economic data have been hard to come by in recent years, so it is welcome news that the period of high inflation has come to an end, and growth is starting to pick up. Northern Ireland is leading the way, with growth of 1.2% this year. This largely reflects an economy that is less exposed to consumer spending pressures and high interest rates, due to the large public sector.

“The focus must now move to the longer-term economic challenges that Northern Ireland faces. Living standards here are lower than the UK average due to lower productivity and higher rates of economic inactivity, making the cost of living crisis more acute. Solving these issues will not be easy for the Executive, but the policy focus should be on investing in skills, encouraging innovation, and supporting people into the workforce.”

UK overview: 

• UK GDP to grow by around 1% this year, up from the 0.5% estimate late last year. In its main scenario, PwC expects growth to pick up further to 1.7% in 2025 and 1.8% in 2026. 

• It is expected that headline consumer price inflation will bounce around the Bank of England’s 2% target for the remainder of 2024, due in part to stubborn services inflation. 

• Corporate insolvencies are expected to rise again this year despite already reaching a three decade high in 2023.

• Around one half of sectors are now experiencing growth and the other half contracting. The three sectors with a large proportion of public sector activity grew strongly; health & social work (2.7%), public admin & defence (2.2%), and education (1.2%). 

• Consumer-facing sectors, such as retail and hotels, continue to struggle as consumers remain cautious. In PwC’s latest Consumer Sentiment Survey, 7 in 10 people said they still expect to make some spending cutbacks over the next three months

Barret Kupelian, Chief Economist at PwC UK says:

"The new Government has inherited an economy that was starting to show signs of growing faster as global tailwinds develop with more stable and predictable energy prices and lower inflation, and the impact of tighter monetary policy on economic activity starting to fade away. In our main scenario, we expect some of this momentum will continue in the short term as the policymaking environment becomes more certain and duller, especially when compared to other peer economies.”

Jake Finney, economist at PwC says:

“The UK has gone from being a poor-performing outlier on inflation to being one of the few advanced economies where inflation is currently back on target. However, the disinflation process is not complete. Indeed, our main scenario projection is that inflation will continue to hover in and around the Bank of England’s target throughout the rest of the year. 

“There isn’t much scope for goods inflation to fall further, so the key ‘known unknown’ is when services inflation will return to more normal levels. Annual services inflation currently sits at around 5.7%, down from its peak of 7.3%. This is higher than what the Bank of England expected in May 2024 (5.3%) and way in excess of its level the last time inflation was at target in July 2021 (1.6%).”