Economists at EY have downgraded the potential for growth in the Northern Ireland economy on the back of the ongoing crisis in the Middle East.
A new economic forecast from the professional services giant anticipates the north’s economy will expand by just 0.7% in 2026, rising to 1.3% in 2027.
Prior to the crisis in Iran and the impact on oil prices, EY had projected 1.2% growth in Northern Ireland this year.
EY expects the Republic’s economy will still grow at almost four times that rate this year, with modified domestic demand (MDD) forecast to increase by 2.7% this year.
MDD is now considered the best measure for accurately measuring the performance of the Republic’s domestic economy.
The price of home heating oil soared by 95% in Northern Ireland during March on the back of the Iran crisis. (Alamy Stock Photo)
That’s mainly the result of the unusual way the presence of major US multinational companies distort the headline gross domestic product (GDP) figures across the border.
GDP is the measure most countries typically use to measure economic output.
The closest thing to measuring GDP in the north is the Northern Ireland Composite Economic Index (NICEI), which is published around four months after the end of each quarter.
The latest index estimates economic activity increased by 0.2% in the final quarter of 2025, leaving it 1.6% up over the year.
Official data on the first quarter of 2026 won’t be published until the end of June, with the second quarter release scheduled for late September.
It means we may not get the full picture of how the closure of the Strait of Hormuz, and the subsequent surge in oil prices, has impacted Northern Ireland’s economy for another five months.
Ulster Bank’s monthly PMI, which surveys around 200 businesses, has indicated the north’s private sector continued to grow in the first quarter.
But EY is already pricing the inflationary oil price shock into its forecast for the rest of the year.
Published this morning, the EY Economic Eye states: “Rising fuel prices, Middle East tensions and a changed US tariff landscape are adding cost pressures and uncertainty.
“Higher inflation is squeezing household purchasing power and has shifted the monetary outlook, with the Bank of England now expected to keep interest rates on hold for the time being while public finances remain tight.
Rob Heron, EY managing partner. PICTURE COLM LENAGHAN
EY expects the north’s labour force to grow by 0.6% across both 2026 and 2027.
It is forecasting UK inflation will average 3.1% this year before easing to 2.4% in 2027.
“Northern Ireland’s economy continues to show resilience, but growth is increasingly constrained by global volatility, impacting costs, confidence and investment decisions,” said Rob Heron, managing partner at EY Northern Ireland.
“Understanding how global tensions, trade arrangements and policy choices affect local businesses is becoming more important for business leaders and policymakers in Northern Ireland as they plan for the future.”