Irish consumer confidence hits 22-month low as households brace for winter of discontent

August brought a small but continuing drop in consumer confidence in the Republic as households braced themselves for further price pressures, according to KBC Bank Ireland. The lender’s latest consumer sentiment index weakened slightly this month to 53.4 from 53.7 the previous month, marking a 22-month low. Consumer confidence here has fallen for six out of the last seven months.

The “very limited change” in the past month is probably best seen as signalling no major change in the mood of Irish consumers of late, the report’s author Austin Hughes said. “This may be because both the scale of price pressures likely to face consumers this winter and the shape of policy measures to offset them are still unclear,” he said.

“If sentiment is holding broadly steady at low levels at present, the circumstances facing Irish consumers are uncertain and threatening and this is reflected in the overall downbeat tone of the survey,” Mr Hughes said. “While the monthly drop in August was relatively modest, it was sufficient to deliver a new 22-month low in Irish consumer confidence, an outcome that paints a more accurate picture of consumers grappling with an increasingly difficult environment.”

The August survey coincided with several gloomy global economic forecasts and evidence of a further step-up in food-price inflation domestically as well as the increased threat of a sequence of interest rate rises from the European Central Bank, which is likely to add further pressure to already strained household finances, KBC’s report noted.

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On the upside, oil prices internationally softened while the Government signalled more substantial support measures in the upcoming budget.

Job concerns

The report also picked up concerns around the outlook for employment, which it described as “surprising” in the context of a continuing drop in unemployment and a sequence of positive jobs announcements, including the news that US healthcare firm Abbott is to invest a further €440 million in its Irish operations, creating 1,000 positions.

“Some combination of reports of a global pullback in hiring by multinationals and hints at a slightly softer domestic labour market recently, as suggested by the new monthly Central Statistics Office employment index as well as anecdotal reports of a softening in domestic spending may have contributed to this out-turn,” Mr Hughes said.

With September expected to see the ECB follow up its July interest rate increase hike with another increase, KBC’s August sentiment survey contained a special question asking consumers what impact higher borrowing costs would have on their financial and economic circumstances.

About one in four consumers (24 per cent) expect higher ECB interest rates to affect them indirectly by weakening economic activity and thereby weighing on their income and/or employment prospects while 19 per cent said they would be hit directly by increased borrowing costs.