Consumer and business confidence slips to eight-month low

Consumer and business confidence slipped this month with Covid-19, Brexit setbacks and supply bottlenecks pushing the latest Bank of Ireland Economic Pulse to an eight-month low.

The index, which combines the results of the consumer and business pulses, posted a reading of 83.2 in November – down 4.4 on October but up 16.2 on a year ago.

Consumers were more cautious about the economy’s prospects this month, according to the survey. With virus cases increasing and UK and EU tensions elevated over Brexit, at 75.2, the index was 1.9 lower than last month but 14.9 higher than a year ago. However, consumers were more positive about their own financial circumstances. Group chief economist at Bank of Ireland Dr Loretta O’Sullivan said the survey suggests “it’s beginning to look a lot like Christmas” with 75 per cent of those surveyed saying they intend to spend the same or more on presents this year compared with last year. This is up from 60 per cent last year and back in line with the prepandemic figure.

Business pulse

The business pulse came in at 85.2 this month, down 5.1 on last month but 16.6 higher than a year ago. “Not only is uncertainty increasing again but pandemic and Brexit-related bottlenecks are biting,” said Dr O’Sullivan. “These are having spill-over effects, with three in four firms reporting increases in non-labour input costs and over half saying that they are likely to hike their selling prices. More positively though, the November Pulse research finds that investment to expand production capacity is on the cards for next year. This suggests that adjustment is starting to happen on the supply side, which should help alleviate some of the pressure on business costs and consumer prices.”

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All sectoral pulses lost ground this month. Services firms were decidedly more downbeat about near-term prospects for business activity, while four in five retailers expect their Christmas turnover to be the same or higher than last year, which is a little lower than normal as the sector deals with stock shortages. Supply-chain disruption is also causing problems for builders and firms in industry, with knock-on impacts for input costs and selling prices.

However, the survey found almost four in 10 (38 per cent) expect to increase spending in 2022 compared with this year, spurred on by strong demand from customers and supportive financial conditions.

Housing

The housing pulse also took a hit this month, coming in at 116.5, down 2.3 on last month’s reading but 44.8 higher than a year ago. “Already high house prices are taking the edge off expectations for further sizeable increases,” Dr O’Sullivan said. The survey found that while four in five households still think house prices will rise over the coming year, the share expecting them to go up by more than 5 per cent eased to 40 per cent in November, from 43 per cent in October. The situation was similar for rent, with expectations for increases in excess of 5 per cent also ticking down, possibly in anticipation of new legislation that includes a 2 per cent cap on annual rent increases in designated pressure zones when inflation exceeds that rate of increase.

The economic pulse surveys are conducted by Ipsos MRBI on behalf of Bank of Ireland with 1,000 households and 1,350 businesses on a range of topics including the economy, their financial situation, spending plans, house price expectations and business activity.