Consumer sentiment brightens in May amid pent-up demand for holidays

Consumer confidence rallied in May after a hat-trick of declines, but business sentiment remained broadly unchanged, the latest economic pulse index from Bank of Ireland has found.

Households remained cautious in the main, although the arrival of the summer holiday season appears to have raised spirits, while falling unemployment and the introduction of Government measures to address the cost-of-living squeeze have helped improve sentiment, the bank said. Two in five people reported that they were planning to spend more on holidays this year compared to 2021.

The mood among businesses has stalled, however, with three in five saying they are finding it difficult to predict the future development of their business situation.

The combined index reading of 82.7 was 1.4 points higher than in April, but 6.8 points lower than where it stood a year ago. The index is based on interviews with 1,000 households and 1,350 businesses, conducted by research company Ipsos on the bank’s behalf.

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“Having softened in March and April, the move up in the economic pulse this month is welcome,” said Dr Loretta O’Sullivan, group chief economist for Bank of Ireland.

“Households are now seeing the €200 electricity credit coming through and many are also benefiting from the reduction in public transport fares. And as we head into the summer season, there appears to be plenty of pent-up demand for holidays,” she said.

Expectations on housing are still more positive than they were this time last year but are weakening, the report said. Affordability is likely to be an issue for both existing homeowners and first-time buyers, the bank said, on the back of economic fallout from the war in Ukraine and the expected rise in European Central Bank interest rates.

“The share of survey respondents expecting house prices to increase by more than 5 per cent over the coming year ticked down this month, to 41 per cent from 44 per cent,” the bank noted.

“Elevated costs remain a challenge for businesses, however, with signs that these are starting to impact competitiveness in the recent survey data.” This is something that will need to be monitored, the bank’s top economist added.

Some 87 per cent of businesses reported an increase in non-labour input costs over the past three months, although the percentage expecting to increase selling prices in the near term was lower at 64 per cent, easing from 67 per cent in April’s index.

On a regional basis, measured on a rolling three-month basis, the pulse reading improved marginally in Dublin where it was one point stronger at 93.4. However it declined elsewhere. The rest of Leinster, which was already the least upbeat region, recorded the largest fall in this survey, down 3.6 points to 74.8. In Connacht/Ulster, the pulse reading over March-May was 78.3, down three points on the February-April figure, while Munster saw its reading dip 2.7 points to 83.9.