Economic sentiment survey shows no budget bounce

Consumers may have been offered some relief in the form of (marginal) tax cuts in this month’s budget, but it wasn’t enough to send their economic confidence soaring, a new survey reveals.

According to the Bank of Ireland Economic Pulse, which polls both households and businesses on their financial situation and spending plans, consumer confidence and business sentiment was up by 1.7 from September to 90.5 in October, but it still remains four points lower than this time last year.

Dr Loretta O’Sullivan, group chief economist with Bank of Ireland, said that the uptick in sentiment looks to be “less of a budget bounce than an unwinding of last month’s temporary setback on the consumer side, and greater positivity among retailers, which may be partly related to the time of the year and firms hiring for the Christmas period”.

When looked at from a regional perspective, it seems that households and businesses in Dublin are the most upbeat, with sentiment down on the month in the rest of Leinster, Munster, Connacht and Ulster.

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The survey shows that, overall, households are more positive about the economy and the outlook for unemployment this month; however, their assessment of their own financial situation was little-changed despite the small advances made in Budget 2018.

“As the budget day giveaways didn’t come as much of a surprise and were fairly modest, households’ assessment of their own financial situation was little changed this month, though there may be more of a reaction when the measures start to kick in,” Ms O’Sullivan said.

House prices

One area where there was more positivity – or negativity, depending on which side of the fence you sit on – is house prices. Households expect the upwards trajectory in both rents and house prices to continue, with more people now expecting annual price increases of more than 5 per cent.

Almost three-quarters of respondents in Dublin say now is a good time to sell a house, with just 40 per cent thinking it’s a good time to buy; this compares with national figures of 63 per cent and 49 per cent, respectively. This buoyancy in house prices is also feeding into people’s confidence to spend money on renovations; the survey shows that one in four is likely to spend a large sum of money doing up or renovating an existing property over the coming year.

Businesses

While business sentiment improved on September, it is still lower than this time last year, weighed down by industry and services sentiment, as the data pointed to some softening in export orders for the coming three months. The weakness of the pound also remains a key concern, as does Brexit-related uncertainty. This will have a knock-on effect on consumers, with just two in five businesses indicating that they expect to increase basic pay over the next 12 months.

Given the weakness of the pound, Ms O’Sullivan said: “It is not too surprising that the Pulse results show some softening in competitiveness for firms in industry over the past three months.”