Interest rates will 'stabilise income'

A DROP in interest rates will see consumer income stabilise this year after two years of significant declines, according to the inaugural consumer monitor from employers’ group, Ibec.

Mortgaged households will be €700 better off per annum as a result of the recent rate cuts and further possible reductions of 0.5 per cent over the coming months.

As a result, mortgaged working households will see spending power increase by 2.4 per cent, according to the study which aims to analyse consumer spending power by charting key consumer indicators and trends.

However, non-mortgage holders will see their spending power decline further this year, according to the study, with their spending capacity set to decline to between 0.8 per cent and 3.7 per cent.

Ibec chief economist Fergal O’Brien said that restoring consumer demand to “more normal, sustainable consumer spending levels” was critical in tackling the unemployment crisis.

“The main cause of the unemployment crisis is the lack of consumer confidence and weak domestic demand. Getting people back to work is the priority, but to do this we need a return to more normal, sustainable consumer spending levels.

“New thinking and greater ambition” is needed to revive activity in the domestic economy, he said.

Among the measures being suggested by Ibec are the introduction of new social welfare smart card system, to ensure child benefit payments are spent in the domestic economy. There is also an intention to reform pension rules to allow people to unlock and use part of their additional voluntary contribution and personal pension savings ahead of time.