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  • Quarterly Economic Survey: A more positive end to 2016 after initial, largely negative, Brexit reaction

Quarterly Economic Survey: A more positive end to 2016 after initial, largely negative, Brexit reaction

10 January 2017

Businesses experienced a more positive end to 2016 after an initial, largely negative, reaction to the outcome of the EU referendum vote announced in June 2016.

This was one of the key findings in the latest Quarterly Economic Survey published today (10 January 2017) by Northern Ireland Chamber of Commerce and Industry (NI Chamber) and business advisors BDO.

Most key balances strengthened during Q4 for both manufacturing and services after what had been a poor Q3 performance.  All of the 14 key services balances improved over the 3-month period and 9 of the 14 in manufacturing. Northern Ireland’s regional position also improved in Q4 having felt the initial fallout from the Brexit vote more keenly than most other UK regions.

The majority of businesses who responded to the survey are positive about prospects for their business in 2017 - 62% expect their business to grow (16% strongly) whilst 20% expect it to contract. However, businesses are less optimistic about prospects for the Northern Ireland economy in 2017 - Some 42% expect the economy to grow (marginally) in 2017 while 37% expect it to contract.


The service sector’s performance in the local economy continued to improve during Q4. The domestic sales balance increased from +25% in Q3 to +33% in Q4 placing Northern Ireland at the top of the regional rankings for this key balance.  The sector’s performance in export markets rebounded strongly after a poor performance in Q3. Confidence around sales, exports and profitability going forward also recovered, as did investment plans.  The cashflow position of the sector also improved considerably during the quarter, up from +4% in Q3 to +21% in Q4.


Despite the more positive end to 2016 for local businesses, significant challenges remain for the manufacturing sector. Manufacturing sales held up in both domestic and export markets during the quarter.  However, order books appear to have weakened for both. Most noticeably, the balance of manufacturers under pressure to raise prices more than doubled in Q4 to +49% (from +23% in Q3) driven largely by rising raw materials costs. However, employment indicators were more positive in Q4 with more manufacturers taking on staff or expecting to expand their workforce in the next 3 months. 

Key concerns

There are however a number of concerns facing business in the year ahead:

  • Exchange rates continue to dominate NI Chamber members’ concerns with 62% citing this to be the case compared to 53% in Q3. Foreign exchange rates are driving up import costs (raw materials and foreign workers) and ultimately putting pressure on profit margins and ultimately prices.
  • Two-thirds of members in both the manufacturing and the service sectors have experienced high levels of difficulties when trying to recruit new staff over the last 3 months. The issue has become much more prevalent for manufacturers during Q4 with 82% stating that they had difficulties finding suitable staff (compared to 42% in Q3).
  • Inflation is also a more pressing concern for businesses, with 30% of members citing it as a key concern compared to just 13% in Q3 2016.
  • A number of members challenge the support provided by government policy to business noting difficulties with the procurement process, extent of red tape and increased costs imposed through, for example, the National Living Wage and the Apprenticeship Levy.

Brexit Watch

NI Chamber’s quarterly Brexit Watch, which forms part of the overall Quarterly Economic Survey, focuses on how the process of the UK leaving the EU is impacting on member businesses. The second Brexit Watch findings would suggest that there is a core of businesses that have felt an immediate impact from the UK’s vote to leave the EU:

  • Around 1 in 5 state that turnover has fallen because of the referendum result. 
  • Around 1 in 4 have scaled back growth and local investment plans because of the EU vote (this is down from 1 in 3 in Q3).
  • Costs are increasing for 1 in 2 businesses due to sterling’s devaluation, particularly rising raw material costs for manufacturers. 
  • It has been a more mixed response for exporters with 14% seeing a boost to exports while for 12% exports have fallen.      
  • Some businesses are planning to boost business growth plans (13%) as a result of the EU vote and 15% are planning to expand investment outside Northern Ireland (down from 18% in Q3). 
  • However, despite this, the outcome of the EU referendum has had limited impact on jobs, both national and non-national, as yet.

Commenting on the survey, Ann McGregor, Chief Executive of NI Chamber, said: “Last year ended on a more positive note after the initial, largely negative, reaction to Brexit in Quarter 3 of 2016. Our findings suggest that local businesses remain resilient as they continue to trade through the uncertainty, with many expecting continued growth in the months ahead.

“Despite this, Northern Ireland’s manufacturing base continues to struggle, with the significant rise in the cost of raw materials increasing the pressure on firms to raise prices in the coming months. The manufacturing sector also continues to struggle with long-term structural issues, with businesses continuing to report considerable recruitment difficulties. Business and government must work together to address the skills gap, while also ensuring that businesses have access to the workers they need, including those from overseas.

“Inflation has emerged as a rising concern for many businesses. Both manufacturing and services firms say they are under pressure, particularly from the rising cost of inputs, which is squeezing margins and may weaken future investment.

“In terms of Brexit, at this stage, our members expect HM Government and the Bank of England to deliver stability of markets, further clarity on the timetable for transition, and firm action on those matters that are entirely within Westminster’s gift, such as guarantees for existing EU workers in the UK.”

Brian Murphy, Partner at BDO, said: "There is no doubt that 2016 posed challenges that most of us were perhaps not expecting. Over the past few months the main concerns we have heard from our clients continue to centre on exchange rates, material costs and general investment intentions. The survey results reflect this with 1 in 5 businesses reporting reduced sales with a further 1 in 4 businesses planning on scaling back or putting local growth plans on hold – with the levels of uncertainty post the EU referendum undoubtedly being at the centre of these results.

“However, there are some very positive results to end the year with.  Increased recruitment intentions, increased sales and improving confidence surrounding cash flow and profitability are reported not only within the survey results but also by many of our clients here at BDO.

“These results point to the fact that Northern Ireland’s businesses have bounced back somewhat over the past few months. Perhaps Brexit hit us harder here but, if there’s one thing that typifies Northern Ireland business is that we are resilient. These optimistic results not only indicate potential growth within the NI economy but also show signs that Northern Ireland businesses are adapting and in many cases looking to make the most out of the opportunity."