DANSKE BANK has slightly upgraded its economic growth forecast for Northern Ireland in 2025 but warned that the outlook remains cautious due to domestic and global pressures.
According to the bank’s latest Northern Ireland Quarterly Sectoral Forecasts, the regional economy is now expected to expand by 1.1% in 2025, a small increase from the previous forecast of 1.0%, but still trailing the UK-wide projection of 1.3%.
Growth is projected to remain steady at 1.1% into 2026.
The report points to several headwinds continuing to weigh on the economy.
Inflation remains above the Bank of England’s 2% target and is outpacing Northern Ireland’s annual wage growth of 2.9%, contributing to a squeeze on household finances.
Business taxes have also increased, adding pressure to employers and potentially slowing job creation.
Conor Lambe, Chief Economist at Danske Bank, said the economic outlook for both Northern Ireland and Britain remains muted.
“Economic growth is expected to remain relatively modest.
Business taxes are higher, inflation is running above target, and uncertainty around fiscal tightening is increasing,” said Lambe.
“Significant attention will be paid to the UK Chancellor’s Budget in November, as fiscal decisions could have notable implications for the economy.”
The bank noted that labour market growth is expected to cool, with employment growth predicted to average 1.5% in 2025 before slowing to 0.4% by 2026.
Despite this, the information and communications sector is forecast to perform strongly, with projected growth of 1.8% in 2025 and 2% in 2026.
Danske Bank also highlighted that while fiscal policy remains uncertain, government spending is currently helping to sustain growth.
Additionally, the Bank of England is expected to gradually reduce interest rates, which could offer further support to the economy if inflation trends downward.
However, the bank cautioned that risks to the forecast remain, particularly if inflation remains elevated or if the upcoming Autumn Budget introduces more tax increases or spending cuts.
“Squeezed public finances and the need to remain within fiscal rules mean the direction of UK fiscal policy is uncertain,” Lambe added.
“Should fiscal tightening increase, or if inflation stays higher than expected, this could weaken household spending power and hamper overall economic momentum.”