Consumer and business confidence sours 

Level of confidence amongst businesses falls below pre-pandemic levels for the first time this year

Looming interest rate hikes mean higher mortgage bills for some households, which could affect spending.

Confidence amongst Irish consumers soured in June according to a major survey as concerns about inflation, the war in Ukraine, and threats to the Northern Ireland Protocol re-ignited households’ fears for the economy.

The Bank of Ireland economic pulse survey also found that the level of confidence amongst businesses fell below pre-pandemic levels for the first time this year.

Revised forecast

A separate analysis published today by Goodbody shows inflation is starting to eat into household incomes as it revised down its forecast for growth next year.

"Global markets have been volatile lately as energy sanctions on Russia have been broadened and as the major central banks up the ante in their fight against inflation," said Loretta O’Sullivan, Bank of Ireland group chief economist.

"Irish households have been jumpy too, with the Consumer Pulse back-pedalling in June after rallying in May. Looming interest rate hikes mean higher mortgage bills for some households and contributed to some slippage in the Housing Pulse this month. 

With supply continuing to lag demand, three in four expect house prices to increase over the coming year

The Economic Pulse, conducted by Ipsos MRBI on behalf of Bank of Ireland, surveys 1,000 households and 1,350 businesses each month. The combined pulse came in at 78.8 in June, down 3.9 on last month and 11 points lower than a year ago.

Downbeat view

At 51.3, the Consumer Pulse posted its joint second-lowest reading, with households taking a more downbeat view of the economy in particular. 

As consumer price inflation has accelerated, so has the share of households reporting that they are "just making ends meet". This stood at a third in June’s survey, up from a quarter at the start of the year.

Challenging backdrop

The Business Pulse stood at 85.6 in June, 3.9 lower than in May and 7.5 lower than a year ago. This is mainly on due to a sharp fall in sentiment in the services sector which had seen five months of gains. 

The backdrop for firms in general remains challenging, with three in five finding it difficult to predict the future development of their business situation at present. 

On the costs and pricing fronts, the share reporting an increase in non-labour input costs over the past three months was stable in June, although still elevated at 87%. 

However, the share of businesses expecting to up their selling prices in the near term eased for a second month running to 62%

According to Goodbody, inflation in Ireland is expected to approach 10% by the end of the summer, the highest since the early 1980s. It said real earnings were expected to fall by up to 4% in 2022, the biggest fall since the aftermath of the financial crash.

Household savings

However, it said Irish households, in aggregate, are in a good position facing into this squeeze.

"Household net wealth is at all-time highs and households have built-up deposits of €23bn (17% of disposable income) over the pandemic period. Moreover, Irish households saved more than any other country during the past two year," the analysis said.

"A normalisation of this savings behaviour should also limit the negative impact on consumer spending. 

There will, however, be a need for further government support for some households over the coming months and will feature heavily in Budget 2023

Goodbody said it was revising down forecasts with modified domestic demand to grow by 2.6% next year, following expansion of 4.7% in 2022. 

"The consumer continues to be the primary driver of the growth in 2022 as savings behaviour normalises. Rising construction output and business investment will also contribute to growth. In contrast, Government spending, after two years of largesse, will negatively contribute to growth for the first time since 2013," the analysis states.