Going up – going down
Cotton prices [going up]
Increased demand for cotton from Chinese manufacturers has pushed up cotton prices to a record high. The United States’ Department of Agriculture has warned that at current levels, world demand will create ‘severe shortages’. The continuing rise in raw material costs is expected to lead to higher high street clothes prices.
Copper prices [going up]
Hedge funds and other speculators have been blamed for a spike in copper prices. They have also been criticised for causing substantial price volatility – the price per ton has varied between $6,400 and $8,900 this year. Last year, commodity traders conducted transactions accounting for 71 times more copper than was mined.
Inflation in China [going up]
China has increased its interest rates on deposits and loans by a quarter of a percent, in a response to increasing domestic inflation. With Chinese manufacturing prices rising and pressure on China to revalue upwards its currency to reduce its trading surplus, inflation is likely to spread to other countries that buy Chinese goods – including Northern Ireland.
Farm land values [stable]
Agricultural land values rose in Great Britain by 8% this year, according to land agents Savills. Reliable figures for Northern Ireland for last year are not available, but Savills believes values were stable. Farm land prices in the Republic fell by over 45% in 2009. According to Savills’ figures, farmland values in Northern Ireland in 2008 were about twice those of England.
UK inflation rates were unchanged in September, at 3.1% using the consumer price index measure, or 4.6% under the retail price index. Clothing and food costs rose, but some transport costs came down. EU wide inflation is much lower at 2% – the UK target figure.
Wages [going down]
Employees are reportedly volunteering for wage cuts. The removal of child benefits for people on the 40% rate of tax has encouraged staff just above the threshold to take a drop in pay. Staff are seeking to either work less hours, or else receive non-pay benefits in lieu of salary, taking them below the £37,400 threshold.
Northern Ireland ‘challenged’ by CSR settlement
The Northern Ireland Executive is under pressure from the UK’s Government’s financial settlement announced in the Comprehensive Spending Review, says finance minister Sammy Wilson. UK financial support for revenue spending will fall by 8% a year over the course of a four year period.
Cuts in the support for capital schemes are most worrying, says Wilson. Contributions towards capital expenditure will drop by 40% by 2014/15, with a single year loss of £343m in 2011/12. “We are going to have to take some very difficult decisions in terms of what projects to fund going forward – the reality is that we have much less money available than was envisaged under the Investment Strategy that was published as part of the previous budget,” explained the finance minister.
Wilson added that cutting revenue expenditure would also cause problems. “Given the inflation and pay pressures we face this is going to be difficult to manage,” he said. “That is why I asked departments to produce savings plans early in our local Budget process – to give them time to prepare for the tighter financial environment from April next year.”
The reduced contribution towards Northern Ireland’s revenue spending was inevitable, under the Barnett formula. According to the Barnett formula, Northern Ireland receives an increase or decrease in funding proportionate to expenditure allocations in Great Britain. With total government spending going down, Northern Ireland’s funding was reduced in line with this.
Northern Ireland’s ministers are to travel to London to ask the UK Government to honour previous commitments on support for spending on capital projects.
CBI backs call for capital spending
CBI Northern Ireland is backing calls to maintain capital spending at previously planned levels. Terence Brannigan, CBI Northern Ireland chairman, said cuts announced by the Chancellor in the Comprehensive Spending Review would be very damaging.
“Continuing to invest in our infrastructure is vital if we are to retain investment and talent,” said Brannigan. “We need investment to help reform our public services and reduce the levels of waste and duplication, and critically we need investment to improve the competitiveness of the economy to facilitate growth in the private sector.
“The Northern Ireland Executive must now confront the budget reality, which has been starkly revealed. I believe the situation is manageable and hope the Executive can reach agreement on their Programme for Government and Budget before the end of the year. Maintaining a focus on strengthening the economy and supporting the recovery are essential. Decisive political leadership will help to boost confidence.
“There are significant opportunities to reduce waste, duplication and cut costs which will be necessary to maintain core public services. There are also significant opportunities to reform and re-structure key public services in order to maintain core outcomes, but in a more efficient manner. The commitment to continue the £200m per year lending facility [from the UK Government] through the Reinvestment and Reform Initiative is welcome. The Executive also has scope to raise additional funding over the next four years to ensure the current investment programme is maintained, through increasing charges, proceeding with asset sales and introducing alternative financing strategies.”
‘16,000 private sector jobs to go’
About 16,000 private sector jobs in Northern Ireland will be lost because of public spending cuts, predicts consultancy firm PwC. Some recovery in private sector employment will take place over the next five years, it hopes. Job losses in Northern Ireland will be much more severe than in other parts of the UK, even within the private sector, believes PwC. It expects 5.2% of jobs to go, compared to 3.1% in London and the South East and 3.4% across all the UK regions.
In total, about one million jobs in the public and private sectors across the UK could go as a result of the spending cuts, says PwC. It predicts about 20,000 public sector job losses in Northern Ireland: creating a total of 36,000 jobs lost from the public spending reductions. But PwC expects the private sector to win increasing numbers of outsource contracts as public bodies privatise services to cut costs.
PwC’s Northern Ireland managing partner, Hugh Crossey, says Northern Ireland must now grasp those opportunities that are presented. “The coalition government has pledged to give the Northern Ireland Executive new powers to rebalance the economy,” he says. “These include Enterprise Zone status and the authority to set differential levels of corporation tax and possibly vary other business taxes to attract and stimulate new investment.
“In addition, departments and ministers need to embrace a portfolio approach to public sector reform, combining innovative finance-raising to fund capital projects and new ways of generating income, with improved efficiencies to reduce the size and cost of the public sector. However, this should not be interpreted solely as a crisis for the Executive – it’s also an opportunity for the private sector to challenge and modernise its own approach to innovation, productivity, exports and wealth creation.”
House prices remain flat
Northern Ireland house prices remained flat in September, with the prospect of further falls in values, reports the Royal Institution of Chartered Surveyors. Over three quarters of RICS members – 78% – responding to its survey expected prices to be unchanged over the next three months, with 22% expecting prices to fall. No one surveyed predicted price rises.
Almost two thirds of RICS’ members predict transaction volumes will not rise: 63% expect transaction volumes to remain as they are; 25% believe they will increase; and 13% think they will fall.
RICS Northern Ireland housing spokesman, Tom McClelland, warned that the situation could worsen. “In the shorter-term, clearly the impact that public spending cuts will have on the local economy is a concern for the Northern Ireland housing market. Our dependence on the public sector leaves us particularly vulnerable. In the longer-term, there is evidence that mortgages will become more difficult to come by as a result of proposed Financial Services Authority regulation changes regarding affordability. This will mean that borrowers will have to meet stricter criteria before they are approved for a mortgage.
“There is now a realisation that the freak economic conditions between 2003 and 2007, which helped drive the property bubble, are unlikely to be replicated. Housing is no longer an investment commodity with ‘never-ending’ capital growth. Investors still in the market look for yields and value.”
Small firms will receive stronger protection from late payment, under new legal obligations agreed by the European Parliament. The standard deadline for paying bills is to be 30 days and companies and public bodies paying bills late will have to pay compensation.
“This directive will pave the way for a whole new payment culture,” said MEP Barbara Weiler, who proposed the measure. “We have aimed to ensure that the rights of the smaller companies are enforced in order to improve liquidity and create a better climate for investments into new jobs.”
Member states have two years to translate the new requirement into domestic law, but the European Parliament hopes that countries will choose to adopt the measure sooner. Business-to-business contracts will still be permitted to vary payment terms beyond the 30 days, with extensions up to 60 days where both parties agree. But payment after this time may only be extended if “expressly agreed” by the creditor and the debtor in the contract and provided that it is not “grossly unfair” to the creditor.
Public sector-to-business contracts will be subject to a general deadline of 30 days. This will only be possible to extend where “expressly agreed” and “objectively justified in the light of the particular nature or features of the contract”.
Creditors of public or private bodies will be permitted to obtain compensation of €40 where payment is late, plus interest of 8% above a reference rate, based on rates currently paid on government-issued bonds.
Company closures bite
Northern Ireland may be on the cusp of a series of damaging company closures and job losses, following the disclosure that several companies have gone into administration as they seek to continue trading.
Well known Northern Ireland coach company Chambers has gone into administration, as have two companies in the large Kennedy construction group. The Limavady Gear Company has also gone into administration. Between the four companies, around 165 jobs are at risk. In addition, 100 jobs are to go at Belfast Metropolitan College. Several dozen staff at the North West Regional College may also lose their jobs.
It had been hoped that the unemployment rate had levelled off. Overall unemployment in Northern Ireland increased by just 500 in September. The unemployment rate has remained stable at 7% over the last year, but remains almost twice the level of three years ago. The rate is below that of the UK as a whole (7.7%) and in the Republic of Ireland (13.6%). But the economic inactivity rate remains much higher than the UK average – at 28.5%, compared to 23.2%.
Some 159 redundancies were notified during September, down from 168 in August and 474 in September last year. In the year ending September, 2,618 redundancies were notified – significantly down from the 5,123 redundancies advised in the same period last year.
The manufacturing sector is showing continued declines in production, with a fall in production of 13.2% compared to 2008. Service sector output has risen for three successful quarters, but is 4.3% lower than in 2008.
Diesel laundering plant closed
One man was arrested in Newtownhamilton in Co Armagh, in the latest joint police and customs raid on an alleged diesel laundering plant in the border areas. Officials claimed the plant could produce eight million litres of diesel for retail sale, removing red and green dye used to mark the fuel as for agricultural use only. The site allegedly contained 60,000 litres of toxic waste.
The raid is the latest in a series, involving not only the PSNI and HM Revenue and Customs, but also the Organised Crime Task Force, the Northern Ireland Environment Agency and officers from Garda Siochana. Four men were arrested in a joint cross border operation in September, which targeted five business premises, including a fuel station in Belfast and properties in Armagh.
Another raid in September, focusing on County Armagh, was alleged to have disrupted an operation with the capacity to produce ten million litres of laundered diesel a year. Officials said it was producing highly dangerous toxic waste.
One man was arrested in August in a raid on residential premises at Clonmore in County Tyrone, which was alleged to have the capacity to produce 1.5 million litres of laundered diesel a year. In July, a coach hire company in Omagh was raided and 11 vehicles seized, on suspicion of using home heating kerosene for powering its vehicles.
Officials said they would continue to take strong action of businesses suspected of defrauding taxes and customs revenues through fuel laundering and which damaged the environment in the process.
Economic conference success
Sixty new jobs are to be created under plans announced to coincide with last month’s Economic Conference in Washington. A Dow Design & Modify Supply Chain Center is to be established in Belfast, intended to create 25 high skilled jobs. And existing investor Terex is to expand its European Global Business Services Center in Dungannon, creating an additional 35 highly skilled jobs.
“Selecting Belfast as the location for the expansion of our global supply chain organization is a meaningful example of our commitment to strategic investments that support our long-term business objectives while also enabling us to have a positive impact on a region and community,” explained Andrew Liveris, Dow’s chairman and chief executive.”
Declan Kelly, the US Economic Envoy to Northern Ireland, said: “The announcements by Dow and Terex signal once again that Northern Ireland is an extremely attractive location for US companies looking to expand international operations.
“Dow is one of the largest and best known brands in the world, and its new investment in Northern Ireland sends a very positive message to other companies interested in the region. I had the chance to meet with the Dow team during their visit to Belfast earlier this year and know they were very impressed by the highly skilled workforce, universities and government support for business.
“Terex has been a long standing investor in Northern Ireland, and its new investment shows yet again that once a company has experienced Northern Ireland, it will continue to look to the region for continued growth because of all the advantages the region offers investors.”