Note on measurement of Northern Ireland economic growth compared to UK average end 2019 to First Quarter 2023

Description

Despite claims to contrary, NI growth last 2+ years less than UK average
(full copy with diagrams and tables attached below)
Dr Esmond Birnie, Senior Economist Ulster University Business School
“Summary of argument
Claims have been made during the last two plus years that the Northern Ireland economy is out-growing the UK average. The influential UK think tank the National Institute for Economic and Social Research (NIESR) drew the conclusion that this is a consequence of NI’s unique dual market access to both the EU Single Market and the UK internal market. “Partly driven by the Northern Ireland Protocol, NI rode the Brexit shock better than the other devolved nations and the English regions. This also led to slightly better growth trajectories compared with the UK as a whole” (National Institute for Economic and Social Research 22 May 2023, “National Institute UK Economic Outlook Spring 2023”, emphasis added). Expect claims about NI’s strong growth potential to figure in this week’s NI Investment Conference. But what do the data really show?
On 1 September 2023 the UK statistical body (ONS) published revised and improved UK GDP growth figures for 2020 and 2021. These revised figures reinforce the result that during period since January 2021, i.e. when the Protocol Brexit trading arrangements for NI began, NI’s economic growth has actually been lower than that in the rest of the UK.
If the entire period Quarter 4 2019 through to Quarter 1 2023 is considered then NI growth does indeed exceed the UK average but what this is showing us is that NI had a much less severe Covid-recession in 2020.This isn’t telling us much about NI’s underlying growth potential or the impact of Brexit and/or the Protocol.
Why recent UK GDP growth revisions matter and applying this to NI
On 1 September 2023 ONS published Impact of Blue Book Changes on GDP. Using more up-to-date and hence more reliable estimates of economic activity across a range of sectors ONS concluded that UK GDP at the end of 2021 was roughly £40bn, or close to 2%, larger than had previously been thought. By implication UK economic growth during 2021 was rather more impressive than had previously been thought.
Most commentators have focused on what these revisions imply for the comparison of UK growth to Western Europe and the other G7, major, Western economies. Instead of the UK being Europe’s laggard it has been about middle of the pack [Note 1]. Instead of UK GDP in Quarter 2 2023 being 0.2% less than the pre-Covid peak (i.e. Quarter 4 2019) that level is now 1.6% up the highest level prior to the Pandemic.
However, there is an additional, NI-specific cause for interest given that we use the revised ONS figures to trace NI’s comparative growth performance. An important point about method is this, the ONS data for the UK have only been revised as far as the end of 2021. We link the UK (revised) growth figures to unrevised ones for 2022 and early 2023. When the ONS comes to revise the UK growth figures for 2022 and 2023 it is possible these will also be revised upwards which would reinforce the conclusion that recent NI growth has been lagging the UK average.
NI comparative growth for the entire period since just before Covid, i.e. Quarter 4 2019-Quarter 1 2023
Taking this longer period we can see that NI growth has exceeded the UK average. NI output in Quarter 1 2023 (the most recent figure, Note 2) was 6.3% higher than Quarter 4 2019. In the case of UK GDP the growth was only 1.3%. However, closer inspection of the quarter-by-quarter data shows that this better performance in NI was really concentrated in mid 2020. NI had a relatively milder Covid-recession and a comparatively rapid bounce back in the rest of 2020. From the start of 2021 NI growth looks hardly any more impressive than the UK average and may have been lagging (something which the figures shown below in Diagram 2 confirms).
Table 1 (in the Appendix) shows the underlying data and Diagram 1 graphs the data for 2019-23:





Diagram 1: NI and UK growth of output Quarter 4 2019-Quarter 1 2023 (Quarter 1 2019=100)

Sources: ONS (11 August 2023), “GDP: Chained volume measures: Seasonally adjusted, £m”. ONS (1 September 2023), “Impact of Blue Book Changes on GDP”. NISRA 29 June 2023, “Northern Ireland Composite Economic Index, Quarter 1 2023”.
NI comparative growth for the period since commencement of Protocol, i.e. start 2021
Over the more recent two+ years, those coinciding with NI’s unique post-Brexit trading arrangements (January 2021+), NI growth has lagged the UK average. In Quarter 1 2023 the volume of output was 8.7% higher than at the start of 2021 (Note 3) but UK GDP was 11% higher. The further post-Covid recovery in NI during 2021 was much less pronounced than was the case in terms of the UK average. Since the start of 2022 growth has been limited in both NI and the UK.
Table 2 (in the Appendix) and Diagram 2 illustrate these results for 2021-23 in more detail:





















Diagram 2 NI and UK growth of output start 2021-Quarter 1 2023 (Quarter 1 2023=100)

Sources: As in Diagram 1.
How our results differ from the National Institute’s (NIESR) and why
The National Institute (NIESR) would be regarded as one of the UK’s leading economic think tanks and, indeed, economic forecasters. NIESR’s most recent National Institute UK Economic Outlook Summer 2023 publication,
https://www.niesr.ac.uk/wp-content/uploads/2023/08/JC737-NIESR-Outlook-Summer-2023-UK-v10-AC.pdf
continues a narrative whereby they stress that the NI economy may have been out-growing the UK average and some of this may be attributable to the Protocol (see also the National Institute UK Economic Outlook Spring 2023 and Summer 2022):
•“The Northern Irish economy has witnessed some resilience through the cost-of-living crisis perhaps aided by to some extent the Northern Ireland Protocol..”
•“Northern Ireland economic output as measured by GVA is above UK levels and exceeds pre-Covid levels…”
There are a few differences between the approach taken by the National Institute compared to my approach. The National Institute use GVA rather than GDP data and their data for the UK comes before the recent data revision. Probably even more importantly, the National Institute compare the level of NI output in early 2023 to that in late 2019 but this obscures the fact that all or most of Northern Ireland’s “growth advantage” was concentrated during the worst of the Covid recession and the immediate recovery in 2020. When the National Institute have noted an NI growth advantage they have sometimes qualified this by saying the growth is “slightly better” than the UK average and have sometimes argued any advantage from the Protocol arrangements would be once-off, would fade over time.”

Ends
Note
1.According to ONS (1 September 2023) for a range of countries the level of GDP in Quarter 2 2023 compared to Q4 2019 was:
USA 6.1%
Canada 3.5
Japan 3.4
Eurozone 2.7
Italy 2.1
France 1.7
UK (revised figures) 1.6
Germany 0.2
UK (unrevised, previous figures) -0.2.

2.A caveat about data and method is as follows. GDP data are available for the UK. There are not available in so timely, up-to-date form for NI. Our judgement is that the best comparison to GDP for UK is the NI Composite Economic Index.
3.The available data is for Quarters. To show growth in NI and the UK since the commencement of the Protocol I worked out a “base” level of output by taking the average for Quarter 4 2020 and Quarter 1 2021.
APPENDIX: underlying data
Table 1 UK and NI levels of volume of output (GDP and NI Composite Economic Index) Quarter 4 2019-Quarter 1 2023 (Quarter 4 2019=100)

Note: The ONS (revised) data (1 September 2023) up until Quarter 4 2021 were linked to other ONS data (11 August) (unrevised) for 2022 and early 2023. Those data were for GDP: Chained volume measures, £m, i.e.
Q4 2021 £554,821m
Q1 2022 £557,524m
Q2 2022 £557,810m
Q3 2022 £557,286m
Q4 2022 £558,005m
Q1 2023 £558,812m

Table 2: UK and NI levels of volume of output Start 2021- Quarter 1 2023 (Start 2021=100)

UKNI
AverageQ42020Q2021 100100
Q1 202199.599.1
Q2 2021106.7104.6
Q3 2021108.6106
Q4 2021110.2106.9
Q1 2022110.8106.9
Q2 2022110.8106.4
Q3 2022110.7106.2
Q4 2022110.9107.5
Q1 2023111108.7
Note: The UK index number (Quarter 4 2019=100) for Quarter 4 2020 was 91.7 and for Quarter 1 2021 was 90.8 giving an average of 91.25. This was then re-set as =100 and a new index constructed as above.
The NI index number (Quarter 4 2019=100) for Quarter 4 2020 was 98.6 and for Quarter 1 2021 96.9 giving an average of 97.75. This was then re-set as =100 and a new index constructed as above.
Dr Esmond Birnie

Period	11 Sept 2023
Degree of Recognition	Regional