'Squeezed' consumers slightly more upbeat as budget looms

Households were more optimistic about the current state of the economy and their own finances in August, but Bank of Ireland's Economic Pulse remains subdued at just under its Covid-19 low point.

Consumer sentiment was slightly more upbeat in August as the country awaits supports aimed at tackling the cost-of-living crisis to be unveiled in next month's budget.

Bank of Ireland’s latest Economic Pulse showed households were more optimistic about the current state of the economy and their own finances, but overall the Pulse remains subdued at just under its Covid-19 low point.

“The squeeze on households’ purchasing power and unsettled environment for businesses have tempered confidence, though the August Pulse findings point to some respite in this respect,” said Dr Loretta O’Sullivan, group chief economist for Bank of Ireland.

“With households expecting the budget to provide some support for their pockets and firms seeing some easing in non-labour input costs, the mood was a little better this month and the Economic Pulse rose for the first time since May,” she said.

The bank’s analysis also showed August was better for some sectors than others. Services and retail business Pulses picked up after contracting in July. However, the industry and construction Pulses slipped again.

Costs and supply issues continue to be major headwinds for businesses, but the survey showed some improvements are happening. The share of firms reporting an increase in non-labour input costs over the past three months eased to 83% from 86% in July, which allowed for a further paring back of selling price expectations.

Dr O’Sullivan said Ireland’s economy is still reeling from the economic shocks it suffered over the last two years including Brexit, the pandemic and the war in Ukraine. However, the removal of pandemic restrictions earlier this year boosted the economy during these uncertain times.

“Employment has rebounded strongly, but the deterioration in UK-EU relations of late is a headwind and elevated global energy prices as a result of the war are adding to inflation,” said Dr O’Sullivan.

The survey also showed 68% of participants across the country think house price increases are on the cards, while just over seven in 10 think rents will rise.

The survey is conducted by Ipsos MRBI on behalf of Bank of Ireland in conjunction with the European Commission. Around 1,000 households and 1,350 businesses participated in the Economic Pulse.