Interest hike will lead to ‘vicious circle’

CONSUMER spending is set to fall this year, hitting exchequer returns and retailers as increases to tax, interest rates and energy costs eat into households’ discretionary spending.

Chief economist at Goodbody Stockbrokers Dermot O’Leary believes the impending increase in interest rates signalled by ECB president Jean-Claude Trichet on Thursday will impact consumers.

“In terms of its impact on consumer spending, we estimate that every 1% increase in interest rates hits disposable incomes by slightly more than 1%, if maintained for a full-year. Giving that disposable incomes will fall on the back of higher taxes, lower employment and falling earnings, this firm’s view is that consumer spending will fall this year.”