In 2024, the political landscape was much more dynamic than the economic scene. The business community celebrated the restoration of the Northern Ireland Executive, while the UK saw a Labour government return with a strong mandate following the General Election.
LOOKING BACK
However, both new administrations have faced significant challenges. They have inherited weak economic growth and a legacy of under-investment in critical areas such as infrastructure and skills. Both governments have recognised that urgency is needed to address the deeply embedded barriers to economic growth, with priority given to planning reform and increasing grid capacity.
Admittedly, Rome was not built in a day, but businesses are nonetheless relieved to see work commence in these critical areas and hopefully they will remain at the top of government agendas in early 2025 and until fully resolved.
Last year a major report by the NI Audit Office shone a light on the underinvestment in NI Water infrastructure. It stated that since 2007 “there have remained major challenges to securing the level of investment in water infrastructure required to deliver services”.
With development applications held up in approximately 100 areas across Northern Ireland because of long-term lack of investment, the business community is eager to see the Department for Infrastructure and NI Water agree an alternative funding model to deliver this essential infrastructure in the year ahead. Without an agreed way forward to pay for our water infrastructure, economic progress will be impeded.
October’s UK Budget was without doubt a blow to many companies across the UK – and Northern Ireland was no exception. Rising employment costs and insufficient support for companies to transition to low carbon left many business leaders accusing the government of stifling growth, employment and investment. The CBI is urging the government to move towards co-designed policies and to work with business to ease the budget pressures, restore confidence and provide headroom for investment.
On a more positive note, the UK government has produced its green paper on the country’s industrial strategy entitled Invest 2035. Given the glaring absence of an industrial strategy in the UK for many years now, this is progress and, if fully developed in partnership with business, will give UK companies a much better chance of succeeding on the global stage.
LOOKING AHEAD
As we look forward to 2025, chief executives are focused on several key issues. While some aspects are more predictable, others remain uncertain. For example, it is widely anticipated that UK interest rates will come down, but at a slower pace. Company leaders also anticipate that the cost of doing business will soar in 2025 with increased Employer National Insurance Contributions and the higher National Living Wage.
These rising labour costs will be budgeted for and will undoubtedly play out in the year ahead in the firm’s hiring intentions, their pay negotiations and the final price that customers pay. Essentially, firms expect headcount to fall, pay rises to be muted and they predict charging higher prices to customers in the domestic market.
Local exporters however maintain that they cannot pass on their rising labour costs through price increases – as they will simply price themselves out of the global marketplace. At the same time, UK businesses expect to see European and US companies access lower interest rates and enjoy lower inflation – so for local firms, their ability to remain competitive in foreign markets next year will become increasingly difficult.
As chiefs put the brakes on hiring, they will simultaneously look to automate and digitalise. When we think about investment in 2025, technology is the one area where many business leaders expect to see a much greater focus. However, the challenge, they say, will be changing company culture to allow for the widespread adoption of technological solutions such as AI and machine learning.
It is, however, much easier navigating challenges when they are anticipated. But there are also several significant ‘known unknowns’ ahead in 2025. For example, companies are highly uncertain about the direction of geopolitical tensions and future trading relationships as the world becomes more polarised. Political instability has steadily risen over the last few years with the Russia/Ukraine war and a highly charged crisis in the Middle East.
War and political instability don’t just destroy lives, they have a knock-on impact on economies and livelihoods through trade sanctions, disruption to supply chains, energy prices, commodity and insurance costs, right through to the movement of labour and ability to access markets.
Chief executives rely heavily on global politicians and diplomats to broker peace deals and reduce political disruption; but with a plethora of elections held during 2024, only time will tell if the world’s newly elected governments will reject division and duality or deliver peace and prosperity.
Angela McGowan is director, CBI NI