Interest hike will lead to ‘vicious circle’
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.”